North Carolina Department
of State Treasurer
THE STATE TREASURER’S
ANNUAL REPORT
TO THE PEOPLE OF NORTH CAROLINA
STATE TREASURER
JANET COWELL
FISCAL YEAR
2014-2015
I take great pride in presenting the
Department of State Treasurer’s
2014-2015 Annual Report. This report
highlights the Department divisions
and their work on behalf of the people
of North Carolina: Retirement Systems,
State Health Plan, Unclaimed Property,
State and Local Government Finance,
Investment Management, and Financial
Operations. It is never far from our minds
that our work impacts peoples’ lives.
The pension funds we manage are
more than an enormous investment
pool—these funds represent a secure
retirement for teachers, firefighters,
police officers and public employees.
It’s about providing a meaningful
benefit to individuals who serve.
This past year has demonstrated the
importance of continuing to diversify
our investments, and should serve
us well in slow-growth or volatile
environments. North Carolina's pension
continues to be solid and that’s good
news for the families that depend on it.
North Carolina’s ‘AAA’ bond rating
signals that our state is committed
to the highest standards of debt
management. This is significant
in keeping financing costs low as
the state faces the challenge of
infrastructure investment. North
Carolina has maintained a
conservative posture on debt and
remains one of just nine states in the
country with an ‘AAA’ bond rating
from all three rating agencies.
The State Health Plan continues
to pioneer new ways to improve
members’ health and the quality and
affordability of the care they receive. A
pilot program that involved a public-private
partnership between the State
Health Plan and four large primary
care physicians is an example of new
ways that may help us better achieve
our goal.
Our vision is to create and maintain
a healthy, prosperous, and financially
sound North Carolina. Making this
a reality requires transforming our
vision into a series of key goals for
the department. This year, the annual
report brings a renewed focus to the
manner in which our accomplishments
fit among the goals of the strategic
plan. These goals ensure that our
organization remains relevant and
responsive to the needs of the North
Carolinians that we serve.
The external goals of that plan are:
Providing Public Leadership in Finance,
Fiscal and Health Policy; Enhancing
Accountability of Department Services;
and Innovating and Modernizing
Operations. Each strategic goal is
accompanied by examples of how
each division was active in the past
fiscal year in achieving these goals.
My staff and I continue to focus on
how to innovate and modernize the
functions of every aspect of what
we do to better serve. We remain
committed as ever to ensuring a
fiscally sound and prosperous state for
all who call North Carolina home.
Sincerely,
Janet Cowell
North Carolina Treasurer
DEAR FELLOW NORTH CAROLINIANS,
TA B L E O F CONTENTS
Treasurer’s Letter. 2
Table of Contents. 3
DEPARTMENT OVERVIEW
Vision, Mission and Values. 8
Strategic Goals . 9
Providing Public Leadership in Finance, Fiscal and Health Policy. 9
Protecting the Pension Plans . 9
Maintaining the State’s AAA Bond Rating. 9
Improving the Health of Public Employees. 10
Establishing Savings Accounts for Disabled North Carolinans. 10
Pushing for Improved Corporate Governance. 11
Promoting Financial Education. 11
*Spotlight: Unclaimed Property Fund Helps Fund Student Scholarships. 11
Enhancing Accountability of Department Services. 12
Improving Customer Service. 12
Promoting Wellness to High-Risk Populations. 12
Gaining New Tools to Return Unclaimed Property . 13
Assisting Local Governments with Finances. 13
*Spotlight: Ensuring Accountability. 13
Focusing on Small and Emerging Investment Managers. 14
Innovating and Modernizing Operations. 14
Investing in Innovation in North Carolina . 14
Streamlining Unclaimed Property Claims. 15
Encouraging Engagement in Health Care. 15
*Spotlight: Supplemental Plan Awards. 15
Rebranding the Retirement Systems. 16
Promoting Awareness of Local Funding Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8
R E T I R E M E N T SYS T E M S D I V I S I O N
Overview of the Retirement Systems Division. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Legislative Highlights. 20
Supplemental Plan Awards. 20
Plan Benchmarking Study. 20
I N V E S T M E N T MANAGEMENT D I V I S I O N
Overview of Investment Management Division. 22
Short-Term Investment Fund. 23
STIF Asset Allocation as of June 30, 2015. 23
STIF Fiscal Year Performance. 24
STIF Top Ten Positions as of June 30, 2015. 24
STIF Summary of Brokers Utilized During Fiscal Year 2014-15 . 25
Pension Fund Investment Program Review. 25
Operating Policy . 26
Pension Fund Strategy. 27
National Average Gross of Fees Returns and Exposure to Risk . 27
Total Pension Fund Structure . 28
Pension Fund Asset Allocation as of June 30, 2015 . 29
Total Fund Performance. 30
Annualized Performance as of June 30, 2015. 31
Cost. 32
2013 NCRS Cost of Investment Operations Compared to Peers. 32
Total NCRS External Feed Paid FY 2014-2015. 32
Total NCRS Fund of Fund Fees Paid FY 2014-2015. 33
Fixed Income. 34
Core Fixed Income Structure. 34
Core Fixed Income Performance . 35
Non-Core Fixed Income Structure. 36
Non-Core Fixed Income Performance. 36
Public Equity . 37
Public Equity Performance. 38
17
21
Real Estate. 39
Real Estate Performance . 42
Private Equity. 43
Private Equity Performance. 44
Opportunistic Fixed Income Portfolio . 45
Opportunistic Fixed Income Portfolio Performance . 45
Inflation Sensitive Portfolio . 47
Inflation Sensitive Protection Performance. 47
Ancillary Investment Programs Review. 49
Escheat Investment Program. 49
Public Hospitals. 50
Other Post-Employment Benefits Fun. 50
Other Non-Pension Long-Term Investment Portfolio Participants . 50
Bond Proceeds Fund. 50
S TAT E & LOCAL GOVERNMENT
F I N A N C E D I V I S I O N
State & Local Government Finance Division Statistics. 52
State & Local Government Finance Division Overview. 53
History. 53
The Local Government Commission. 53
The North Carolina Capital Facilities Finance Agency. 55
Debt Management. 54
Fiscal Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
S TAT E H E A LT H P L A N D I V I S I O N
Overview of State Health Plan Division . 64
Governance. 64
Membership Statistics. 64
Legislation Enacted . 67
High Deductible Health Plan. 67
State Health Plan Retiree Enrollment . 67
Local Governments Joining the State Health Plan. 67
51
63
Financial Statistics. 68
NC HealthSmart and Health Assessment Statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
State Health Plan Health Assessment Completions. 71
Milestones . 71
U N C L A I M E D P ROPERT Y D I V I S I O N
Unclaimed Property Division Overview. 73
Unclaimed Property Division Statistics. 74
F I N A N C I A L O P E R AT I O N S D I V I S I O N
Financial Operations Division Statistics . 76
Financial Operations Division Overview. 76
History. 76
Banking Operations. 76
Bank Reconciliation Unit. 77
Statewide Accounting Operations. 77
72
75
DEPARTMENT OVERVIEW
7 North Carolina State Treasurer’s Annual Report • 2014-2015
The Department of State Treasurer (Department) serves the people of North Carolina through a variety of functions
related to the financial health of the state and its citizenry. State Treasurer Janet Cowell serves as the state’s banker
and chief investment officer, and, as such, she is responsible for more than $100 billion in assets.
The Department administers the public employee retirement systems for more than 900,000 North Carolinians, as well as
the 401(k), 457 and 403(b) plans for public employees. The Department provides fiscal assistance and expertise to local
governmental units by assisting them in the sale of local government debt obligations and in maintaining good budgeting,
accounting, reporting, and other fiscal procedures. The Department oversees the State Health Plan, which provides
health care coverage to approximately 685,000 teachers, state employees, retirees, current and former lawmakers, state
university and community college personnel, and their dependents. It also administers NC Cash, the unclaimed property
database that holds approximately $440 million. This report covers the fiscal year July 1, 2014 through June 30, 2015.
The Department of State Treasurer is made up of approximately 400 employees, and is composed of the
following divisions:
DEPARTMENT OVERVIEW
North Carolina State Treasurer’s Annual Report • 2014-2015 | 8
VISION, MISSION AND VALUES
The vision of the Department of State Treasurer is to create and maintain a fiscally sound and prosperous North Carolina.
The Department works to achieve this goal by taking utmost care in overseeing the finances of the State. The Department’s
mission is to add value to and instill confidence in the state’s citizens, customers and the financial community by providing
exemplary oversight and customer service.
At the heart of the Department’s work are its core values, which are implemented consistently at all levels and across all
Divisions. These include:
Retirement Systems
State Health Plan
Unclaimed Property
State and Local Government Finance
Financial Operations
Investment Management
Information Technology
Office of State Treasurer
Customer Orientation
Focus on our customers, the citizens
of the state of North Carolina
Diversity
Recognize and value the benefits of
diverse ideas, perspectives,
and people
Integrity
Establish and maintain the highest
level of integrity and ethics
Long-Term View
Maintain a big-picture perspective
and strategic approach
Performance-Driven
Operate with performance excellence
to achieve optimum results
Transparency
Structure and conduct all aspects
of our work with an open and
transparent policy, promoting both
trust and accountability
DEPARTMENT OVERVIEW
North Carolina State Treasurer’s Annual Report • 2014-2015 | 9
STRATEGIC GOALS
The Strategic Plan provides the vision, mission, strategic goals, and performance measures for ensuring the desired results
for the Department of State Treasurer. The plan is a result of the assessment, goal setting, and planning process of the
Department, designed to influence future success and achieve departmental goals.
The Department has identified the following strategic goals for the Strategic plan:
This report will address Department highlights of the first three goals. The fourth goal, maximizing talent, was added to
focus on staff recruiting, retention and growth, which will support the other strategic goals. This report will focus on the
external-facing divisions of the Department and their work on behalf of the people of North Carolina: Retirement Systems,
State Health Plan, Unclaimed Property, State and Local Government Finance, and Financial Operations.
Goal 1
Providing Public Leadership
in Finance, Fiscal and
Health Policy
Goal 2
Enhancing Accountability of
Department Services
Goal 3
Innovating and Modernizing
Operations
Goal 4
Maximizing Talent
PROVIDING PUBLIC LEADERSHIP IN
FINANCE, FISCAL AND HEALTH POLICY
The Department of State Treasurer serves as a model
for others so as to positively influence legislative,
finance, health care and other government agencies in
promoting finance, fiscal and health policies that create and
maintain a financially sound and prosperous North Carolina.
Consistent with the Department’s mission, government
agencies have a responsibility of continuously improving the
value of the services that citizens receive. The Department
recognizes that in order to improve that value, it must
continuously increase the standards by which it operates and
collaborate and lead in both public and private initiatives
that are serving the needs of North Carolinians.
PROTECTING THE PENSION PLANS
One of the primary responsibilities of the Department of
State Treasurer is to provide a safe and secure retirement
for North Carolina’s 900,000 public employees, including
teachers, police officers, firefighters and public servants.
These individuals rely on the integrity, knowledge and
judgment of the Department of State Treasurer.
The North Carolina pension plans are invested for the long
term, and are conservatively managed to protect the full
funding status. This keeps our state prepared to pay out
obligatory pension benefits.
The combined plans returned 2.3 percent for the fiscal year
ending June 30, 2015. Pension plans’ assets were valued at
$89.575 billion as of that date. The pension plans returned
9.5 percent over the last 5 years; well in excess of the 7.25
percent long-term actuarial assumed rate of return. During
a particularly volatile year, the North Carolina pension
plans weathered the markets and ended in solid shape. The
investments outside of stocks and bonds helped provide a
strong buffer.
MAINTAINING THE STATE’S AAA BOND RATING
A triple-A bond rating indicates that North Carolina has
followed well-defined financial management policies and
demonstrated strong debt management practices. Standard
and Poor’s, Moody’s Investors Service, and Fitch Ratings
– three primary bond rating agencies – all reaffirmed the
“AAA” rating for North Carolina in the 2014-15 fiscal year.
While maintaining this strong rating is a good sign of the
state’s fiscal health, federal budget deficits may present a
challenge to sustaining the triple-A rating. Bond ratings are
largely dependent on the economic stability and diversity
of revenues, conservative debt management, administrative
capabilities, fiscal performance and financial condition,
including funding of long-term benefit programs such as the
retirement systems and health care. At June 30, 2015, the
State had a “Triple-A” rating, the highest rating attainable,
from all three national rating agencies. Only nine other states
DEPARTMENT OVERVIEW
North Carolina State Treasurer’s Annual Report • 2014-2015 | 10
enjoyed this distinction. These ratings have enabled the State
to sell its bonds at interest rates considerably below the
Bond Buyer’s Index, thereby providing tremendous savings
to North Carolina’s taxpayers.
In addition, the Division staffs the State’s Debt Affordability
Committee and drafts an annual Debt Affordability Study,
which provides the General Assembly with an overview of
the State’s debt load and borrowing capacity. The February
1, 2015, study determined that the State’s annual General
Fund debt capacity was approximately $698 million in
fiscal year 2015. The study also provided an estimate of the
annual debt capacity for the transportation funds (the State
Highway Fund and Highway Trust Fund) and projected that
there is approximately $226 million of new transportation
debt capacity.
IMPROVING THE HEALTH OF PUBLIC EMPLOYEES
NC HealthSmart, the State Health Plan’s healthy living
initiative, provides members with tools and services to help
them manage their weight, quit tobacco, exercise more,
reduce stress, and take easy preventive steps to maintain
their health. Resources include healthy lifestyle, maternity
and behavioral health coaches, as well as disease and case
managers. Many programs are offered to members at no
extra cost.
NC HealthSmart resources include preventive services
available to members:
• Covered services such as nutrition visits, flu shots and
routine physicals
• Tobacco cessation services through QuitlineNC with the
provision of certain tobacco cessation medications for
free. During CY2014, 641 members utilized the QuitlineNC
multiple-call program. 1,010 nicotine replacement
therapies were sent to members which included patches,
gum and combination therapy.
• Weight management services including covered
medications and procedures as well as minimal cost for
participation in the Eat Smart, Move More, Weigh Less
program (ESMMWL). In CY2014, 59 online and 27 onsite
ESMMWL classes were held for a total of 86 classes.
Enrollment for online classes included 1,147 members with
a completion rate of 59.4% and average weight loss of
8.1 pounds. Enrollment for onsite classes included 425
members with an average completion rate of 77.6% and
average weight loss of 5.9 pounds.
• A 24-hour nurse line to provide quick advice about
medical concerns. 2,252 members called the 24-hour
nurse line during CY2014.
• An online Personal Health Portal which offers members:
A convenient location to keep their health information,
including medical and pharmacy claims
A secure, online space that provides one-stop access
to their health information, tools and other resources:
- Health Assessment and Health Action
Plan to help members gain a full
perspective of their current health status
- Online coaching consisting of self-paced
modules to guide members through
different health topics
- Instant messaging with a nurse for
quick answers to health and wellness
questions
- Expansive health information library,
with text, audio, and video files for many
conditions and health topics
- Email access to health coaches to
encourage engagement
- Condition and activity trackers to help
members monitor progress towards their
health goals
- Healthy recipes, a nutritional food
grading system and more
ESTABLISHING SAVINGS ACCOUNTS FOR
DISABLED NORTH CAROLINIANS
The Department took the lead in helping enact the North
Carolina Achieving a Better Life Experience (ABLE) Act,
signed into law in summer 2015. The program means people
with disabilities will have the ability to save money in a tax-deferred
account for some of their expenses related to health
and wellness, employment supports, education, housing, and
other costs not covered by Medicaid. A total of $14,000 a
year can be contributed to this account from various sources
such as friends, family and employment earnings.
DEPARTMENT OVERVIEW
North Carolina State Treasurer’s Annual Report • 2014-2015 | 11
The new program will be overseen
by the Retirement Systems Division
and allows people with disabilities
and their family members to
save up to $100,000 in a 529(a)
account for qualified disability
expenses without affecting their
governmental benefits.
PUSHING FOR IMPROVED
CORPORATE GOVERNANCE
Treasurer Cowell believes that
well-governed companies perform
better, grow in value, and increase
the returns for their shareholders.
The Department encourages
companies to adopt and maintain
established, reliable governance
practices through the work of
the Department’s Corporate
Governance Committee. These
practices help the Department
make fully informed investment
decisions and maximize returns
over the long-term for pension plan
members and beneficiaries.
The Corporate Governance
Committee has a strategy to
reaffirm the principles of long-term
perspective, diversity, and
transparency. The Department acted on each of these
principles by asking a Houston-based company called
EOG Resources to allow shareholder-nominated directors
on the ballot, and the company amended its bylaws
accordingly after a majority of shareholders approved this
resolution in June 2015. Additionally, Symantec, a cyber-security
firm, streamlined the description of its corporate
spending on political campaigns after a dialogue with the
Department. Meanwhile, the Department underscored
its priority on diverse perspectives in the boardroom by
hosting a corporate forum in April 2015 and then petitioning
the Securities and Exchange Commission for greater
transparency about directors’ skills and experience. Details
about these and other related conversations are available in
the Department’s 2008-15 Corporate Governance Report,
available online at nctreasurer.com/corporategovernance.
Looking forward, the Department will act on these
principles by evaluating ways to institutionalize a longer-term
perspective in the marketplace, promoting Treasurer
Cowell’s ongoing diversity-related efforts to a wider group
of potential partners, and raising the bar for corporate
disclosures being transparent and easily usable by investors.
PROMOTING FINANCIAL EDUCATION
The Department of State Treasurer is committed to
helping North Carolina families increase their personal
understanding of finances and ability to grow personal
wealth. Financial education helps provide citizens of all
ages with the information and resources to manage their
finances and make financial decisions.
This year was one of renovation, focused on rebuilding
the Department’s voice and position on specific financial
education initiatives. Our financial education outreach
touched 15 statewide issue areas through opportunities that
were responsive to the Department’s strategic goal. The
year’s highlights included promoting the federal earned
Unclaimed Property Fund Helps
Fund Student Scholarships:
Kiasia Sanderlin, a freshman at North Carolina
Central University (NCCU), knows personally the
benefit of the money the Escheat Fund provides
for financial aid. Kiasia, a native of Windsor, N.C.,
in Bertie County, was excited to be accepted at
NCCU. She plans to major in Accounting with a
concentration in Finance. Kiasia was raised by
her grandparents who ended their schooling in
the second grade. She hopes to be the first in
her family to graduate from college. Kiasia stated
proudly that she was accepted to two other institutions but one of the reasons
she chose NCCU was because
the university awarded her
the largest amount in grants
and other financial assistance,
making NCCU the most
affordable for her. Reflecting
on the need-based grant she
received for NCCU, Kiasia
stated, “I don’t think I would be
able to attend college if I had not received financial assistance.” Kiasia is one
of more than 51,000 students that received need-based grants to attend UNC
System schools in the 2014-2015 academic year.
She hopes to be
the first in her
family to graduate
from college.
SPOTLIGHT
DEPARTMENT OVERVIEW
North Carolina State Treasurer’s Annual Report • 2014-2015 | 12
income tax credit and free tax preparation, a press
conference to increase awareness around the NC 529
savings plan, and celebrating financial literacy month
across the state with conversations with students about
managing money wisely.
Future plans include integrating financial education into
the Department’s operations and member outreach,
specifically with the State Health Plan and Retirement
Services Division; beginning to plant seeds for future work
with the ABLE program; and continuing financial education
support for higher education and Department employees.
ENHANCING ACCOUNTABILITY OF
DEPARTMENT SERVICES
The Department of State Treasurer strives to manage
current operations efficiently and effectively,
including providing solid customer service to the
citizens of the State. The Department and all government
agencies, have a fiduciary responsibility to the citizens we
serve to see that their resources are used in accordance
with the laws and regulations and to demonstrate that
it serves the best interests of North Carolinians. This is
necessary to ensure public confidence and maintain
public support for needed government services.
IMPROVING CUSTOMER SERVICE
Since providing exceptional customer service is one
of the primary missions, the Department was fortunate
to realize many advantages with the 2015 move of all
divisions into one central location at a state-of-the-art
facility. In addition to saving taxpayers’ money by
consolidating four different rent payments into one, it also
provided the Department with the opportunity to provide
other improvements that benefit our staff and ultimately
citizens, including:
• Significantly improved staff communication and
collaboration by housing all Department of State
Treasurer divisions on one campus for the first time in
the Department’s history.
• Free, convenient and ample parking, as well as a
pleasant new reception area, for members who
visit the Department for in-person retirement
counseling sessions.
• 24/7 self-service with our new Interactive Voice
Response technology that enables our members to get
the information they need via telephone without having
to wait for a call center representative.
• Improved mail machines with new technology to help
the division more quickly and effectively send out
checks and other retirement-related communications.
PROMOTING WELLNESS TO HIGH-RISK
POPULATIONS
Wellness Wins Pilot Initiative: Wellness Wins is a two-year
pilot designed to create a replicable model for influencing
member health through the engagement of primary care
providers, worksite wellness programs, and community
resources. The counties of Greene, Jones, and Lenoir were
targeted for this pilot initiative based on high levels of
type II diabetes, asthma, chronic obstructive pulmonary
disease (COPD), coronary artery disease, congestive heart
failure, and stroke. Pilot program planning began in the
fall of 2014, and a kickoff event was held in Lenoir County
in May 2015.
The objectives of Wellness Wins are to:
• Establish sustainable worksite wellness programs
• Increase member awareness of and engagement in their
own health
• Increase member engagement with medical homes/
Primary Care Providers
The State Health Plan will contract with partners including
the Division of Public Health through the Obesity,
Diabetes, Heart Disease and Stroke Preventions grant
received from the Centers for Disease Control and
Prevention, Prevention Partners, and Community Care of
North Carolina to create environments that support health
where Plan members live, work, and receive care.
Wellness Champions Program: The Wellness Champions
Program was designed to create a network of wellness
advocates throughout the state to support the health of
State Health Plan members through the implementation
of worksite wellness programs. The Wellness Champions
Program will provide wellness advocates with
opportunities to earn worksite wellness incentives
through the completion of wellness related activities.
The Wellness Champions Program launched on April 1,
2015. The fiscal year ended with a total of 117 Wellness
Champions registered from state agencies, universities,
DEPARTMENT OVERVIEW
North Carolina State Treasurer’s Annual Report • 2014-2015 | 13
community colleges, and school
systems covering 41 counties
throughout the State.
GAINING NEW TOOLS
TO RETURN UNCLAIMED
PROPERTY
During the 2015 legislative session,
the Department was successful in
encouraging the General Assembly
to enact legislation that clarifies the
Unclaimed Property Division’s audit
authority. Legislation grants the
Treasurer the authority to conduct
an examination of an unclaimed
property holder, and review the
holder’s records for compliance
even if the holder believes it is not in
possession of abandoned property.
The Department worked to pass
legislation that will assist with
identifying and reporting unclaimed
property. In an effort to promote
efficiency, public safety, and to
ensure certain tangible property ends
up in the proper hands, the new law
allows the Treasurer to direct financial
institutions to transfer certain tangible
property, like firearms or illegal
contraband, to the proper local, state
or federal authority, rather than to the
Unclaimed Property Division.
Additionally, the Department
successfully advocated for new
tools to help reunite citizens with
lost life insurance benefits that their
loved ones intended for them to
have. The new law requires most
insurance companies that write life
insurance policies in North Carolina
to determine semi-annually whether
policies match the names of a federal
database.
ASSISTING LOCAL GOVERNMENTS
WITH FINANCES
The State and Local Government Finance Division
monitors fiscal and accounting standards prescribed for
local governmental units by State law. Each unit of local
government is to have its accounts audited annually by a
Certified Public Accountant or by an accountant certified
by the Department’s Local Government Commission. As a
part of its role in assisting local units and monitoring their
fiscal programs, the Division provides guidance in following
generally accepted accounting principles. Each local
government is required to file a copy of its annual audit
report with the Division and submit all audit invoices to
the Division for approval.
Ensuring Accountability
Small Steps, Big Results – an NC HealthSmart Success
Story: Felix, a State Health Plan member in Stanly
County, was struggling to manage his weight and
seeing a negative impact on his health. Felix
received a letter from an NC HealthSmart health
coach, inviting him to schedule an appointment
and begin to put his health as a priority. After
experiencing various health issues he decided to
take advantage of this free resource to help him take
charge of his health.
Weight loss was Felix’s primary focus. But his health coach also spoke to him on
how to manage his current health and reduce future health complications. His
health coach helped him understand
his current health and steps that he
could take to improve it. Felix used
this information to get his health
back on track and create a long-term
plan to support healthy behaviors.
Felix began speaking with a health
coach in April 2014, weighing 274
pounds, with a Body Mass Index
of 37.1. He spoke regularly with his
health coach to set small, obtainable
goals to make healthy behaviors part
of his everyday lifestyle. Felix set
goals to walk a little each day, reduce his portion sizes, and reduce his intake
of fried foods. After hard work and determination, Felix was able to reduce his
body weight to 209 pounds, with a Body Mass Index of 29.1. In roughly a year
Felix was able to lose 65 pounds!
By losing weight in a healthy way, with reachable and realistic goals, Felix
incorporated healthier eating and physical activity into his day-to-day lifestyle.
He is also utilizing his health benefits to keep his conditions on track and
creating a healthy future.
NC HealthSmart health coaches are a free resource for all State Health Plan
active members. Members can get started by calling 800-817-7044.
He spoke
regularly with his
health coach...
to make healthy
behaviors part
of his everyday
lifestyle.
SPOTLIGHT
DEPARTMENT OVERVIEW
North Carolina State Treasurer’s Annual Report • 2014-2015 | 14
In fiscal year 2014-15, staff issued 18 public memoranda
directed to local governments, auditors and the
State’s public finance community. Topics included the
implementation of the new government accounting
financial reporting standards, secondary market disclosure
requirements, the effects of federal sequestration on certain
local government debt instruments, an updated version of
discussion of internal controls for small governments, and
the annual statistical reports.
FOCUSING ON SMALL AND EMERGING
INVESTMENT MANAGERS:
In June 2015, Treasurer Cowell introduced a new program
that will focus on selecting small and emerging managers
for the North Carolina pension plans’ private equity
investment portfolio. This new small and emerging
managers program will primarily focus on minority and
woman-owned firms, funds under $750 million, and first-and
second-time funds. “Investing is all about finding new
potential and helping to realize that potential,” Cowell said.
“The first program focusing on public equity has been
successful. Expanding the program to private equity allows
us to capture higher returns that will benefit pensioners
while tapping new talent.”
North Carolina’s small and emerging manager program will
be managed by Neuberger Berman’s NorthBound team led
by Pat Miller Zollar. The team was chosen based on its proven
track record of identifying small investment firms with the
potential to achieve above-benchmark results. The capital
allocated will target multiple strategies, including Buyout,
Growth Capital, Venture Capital and Special Situations.
This multi-faceted approach will be achieved through fund
investments, co-investments and secondary investments.
In 2013, the Department began a $300 million small and
emerging manager program in public equity, which is
performing in line with expectations although still in its
early stages. Many public funds utilize small and emerging
manager programs because of evidence indicating that
small, emerging investment firms outperform their larger
competitors. The Department of State Treasurer has also
made advancing a culture of diversity a strategic objective.
The Department is committed to working with historically
under-utilized businesses (HUBs) to the extent possible
without compromising superior risk-adjusted returns.
INNOVATING AND MODERNIZING
OPERATIONS
The Department of State Treasurer works to find
new ways to deliver services and value, including
expanding or restructuring responsibilities. It is
important to balance resource investments in ensuring
a stable and reliable business infrastructure while also
leveraging new public or private solutions that could have
a meaningful impact on the services that are provided to
the citizens of North Carolina. Creating and supporting a
culture of innovation can also help attract the best talent to
the Department.
INVESTING IN INNOVATION IN NORTH CAROLINA
In April 2015, Treasurer Cowell announced a second North
Carolina Innovation Fund (NCIF), a $250 million commitment
to North Carolina-centered companies. Joined by former
Bank of America Chair and Chief Executive Officer Hugh
McColl, Cowell highlighted the first NC Innovation Fund’s
success and recommitted the North Carolina pension fund
to achieving a strong rate of return while also investing in
North Carolina’s economy and jobs.
The first fund is $232 million, of which $185 million has been
committed to eight private equity managers and 12 companies
through co-investments alongside private equity managers.
Despite the still early age of the Fund, the NCIF portfolio is
exhibiting strong performance and a 20 percent internal
rate of return (IRR), with three successful exits to date and
multiple valuation increases since investment. It is managed by
Grosvenor Capital Management’s Charlotte office.
The second Innovation Fund of $250 million will designate
around two-thirds to co-investments in diverse industries
including growth sectors in North Carolina. One-third of the
fund will have a Multi-stage focus: venture, growth, buyout
and mezzanine.
Continuing the North Carolina innovation theme, Treasurer
Cowell proposed a new investment funding source to the
legislature. The plan received strong bipartisan support and
was enacted in the state budget. The fund would allow the
Department to invest a small portion (10 percent, or around
$40 million-$45 million) of the state unclaimed property
(Escheat) fund with a new Venture Capital Multiplier Fund.
The Department would focus on early-stage and smaller
private-sector businesses. It frequently takes longer for
these investments to generate returns, but those returns can
be much larger when they come.
DEPARTMENT OVERVIEW
North Carolina State Treasurer’s Annual Report • 2014-2015 | 15
It is the goal of the Department that the annual amount
utilized from the Escheat Fund for financial aid will be
limited to, or in close proximity to, the annual amount of
interest earned annually on the Escheat Fund and will
not continue to involve substantial appropriations from
the principal. While the Department holds these funds,
additional investment authority granted through legislation
will now allow the Venture Multiplier Fund to serve as
seed money to create the opportunity to spur greater
entrepreneurial activity within North Carolina with small,
strategic investments.
STREAMLINING UNCLAIMED PROPERTY CLAIMS
In January 2015, the Department launched a new effort
to improve customer service and modernize operations
within the Unclaimed Property Division by implementing
automated services. The NCCash.com website now
provides an automated claims processing service which
allows claims that meet certain criteria to be approved
through a paperless process. Additionally, the website was
enhanced to provide an easy four-step process to allow
citizens to claim their funds. A total of 35,664 claims were
paid in the 2014-15 fiscal year, totaling $49.8 million. The
automated claims approval process allowed 11,545 (32
percent) of those claims to be submitted and approved
online, reducing the amount of paper documents to be
submitted to the Division and decreasing the turnaround
time for payment of those claims to less than 10 business
days. In addition to enhanced online services, the Division’s
outreach program, NC Cash, attended 26 events across the
state and looked up more than 33,000 names, resulting in
3,578 matches for $985.2 million.
ENCOURAGING ENGAGEMENT IN HEALTH CARE
The State Health Plan periodically conducts pilot programs
and other initiatives to determine effectiveness. In 2015, the
Plan began the Patient Centered Medical Homes (PCMH)
Pilot Project. Patient Centered Medical Homes provide
members with a comprehensive health care environment,
Supplemental
Plan Awards
The Supplemental Retirement
Plans NC 403(b) Program was
recognized in 2015 by two national
organizations and granted two
prestigious national awards.
The first was the “2015 Excellence in
403(b) Plans Award,” presented by
the National Association
of Government Defined
Contribution Administrators
(NAGDCA), for which
the development and
implementation of the
NC 403(b) Program
was recognized
as an outstanding
achievement in defined
contribution plan design.
The second award was
granted by Pensions & Investments
Magazine and the Defined
Contribution Institutional Investment
Association. Treasurer Cowell was
named a “2015 Innovator” for her
efforts in providing a thoughtful,
multi-layered and unique legislative
solution that would help North
Carolina’s frontline educators and
school staff to ultimately save more
for retirement. In naming Treasurer
Cowell as the recipient, the NC
403(b) Program was recognized for
its “competitive pricing, institutional
investment management and strong
oversight by the North Carolina
Supplemental Retirement Board
of Trustees … while helping
NC educators reach
retirement readiness.”
In addition, the NC
401(k) Plan was
recognized for its
2014 National Save
for Retirement Week
communications program
by the National Association of
Government Defined Contribution
Administrators. The NAGDCA
Leadership Recognition Award was
presented to members of the NC 401(k)
Plan in the category of excellence
and innovation in retirement plan
design, administration and/or effective
communication methods. The basis for
the award was its comprehensive and
targeted outreach to Millennial and
Generation X males and females that
led to an enrollment boost in the plans
of 4 percent.
All of these awards recognize the
efforts being made in support of
the Treasurer’s mission to secure
the retirement of North Carolina’s
public servants while also delivering
personalized services in that effort.
These awards
recognize the
efforts being
made in support
of the Treasurer’s
mission...
SPOTLIGHT
continued on next page...
DEPARTMENT OVERVIEW
North Carolina State Treasurer’s Annual Report • 2014-2015 | 16
and assurance that they are receiving optimal care that is
both high quality and cost efficient. The State Health Plan,
in conjunction with ActiveHealth Management, developed
the PCMH pilot to engage physicians in the care of Plan
members through alternate payment strategies as well
as data driven, coordinated supports to achieve better
health outcomes and to improve the member and provider
experience in a complex health care environment.
The PCMH pilot looks to test:
• Alternate payment strategy
• Effective communication
• Evolving role of the population health
management vendor
• Optimum utilization and sharing of data
• Defining and measuring quality of care
• Determining “total cost of care” in shared
risks and savings
Through the PCMH pilot, the Plan will contract with
provider groups and provide a per member per month
payment to assist them in the management of Plan member
health. Throughout the two-year pilot period, practices will
work toward selected quality clinical metrics and targets to
demonstrate patient care.
REBRANDING THE RETIREMENT SYSTEMS
In support of Treasurer Cowell’s efforts to renovate
and modernize the Department of State Treasurer, the
Retirement Systems Division launched a rebranding
campaign to better reflect all of the ways it can help public
sector employees prepare for retirement.
At its core, the name change and rebranding signified
a philosophical shift that refocused the Department of
State Treasurer’s mission of helping all public employees
achieve a retirement income level that equals at least 80
percent of their pre-retirement income, and have it last them
throughout retirement.
Even though the state pension plan provides a solid
foundation for retirement income, for many people it won’t
replace 100% of pre-retirement income. By contributing
to a (tax-deferred) 401(k), 457b or 403(b) retirement plan,
they can bridge the retirement income gap and get closer
to retiring with 100% of their pre-retirement salary. Today,
64.01% of all North Carolina public servants are projected
on track to replace 80% of their income by age 62.
The new visual identity for the North Carolina Total
Retirement Plans was inspired by the stunning natural
scenery of North Carolina and is symbolic of the Retirement
Systems bringing together all of the resources employees
need to plan and enjoy a successful retirement.
PROMOTING AWARENESS OF LOCAL
FUNDING ISSUES
State and Local Government Finance staff members
worked with the University of North Carolina School of
Government to present the 14th annual State Treasurer’s
Conference on Local Government Accounting, Auditing
and Financial Management held in May 2015. The
conference is intended for both local government auditors
and officials. It was conducted at two sites and drew
more than 231 participants. Topics covered included
a current Governmental Accounting Standards Board
(GASB) update, a “pay as you throw” financial model
for solid waste disposal, funding resources for capital
improvement projects, an update on unclaimed property
filing requirements, and other topics of interest to local
governments. In addition, staff members spoke at 11
continuing education courses and conferences sponsored
by organizations such as the UNC School of Government,
various North Carolina finance officers associations, the
North Carolina Association of Certified Public Accountants
and North Carolina State University.
A Continuing Professional Education class for governmental
auditors was offered again in 2015 in collaboration with
the UNC School of Government. Held at the UNC campus,
the class covered information from the Department of
Health and Human Services on compliance issues, how to
present the results of the annual audit to an elected board,
unclaimed property filing requirements, Local Government
Commission approval of local government debt, and new
GASB standards. It was well-received with 110 attendees.
RETIREMENT SYSTEMS DIVISION
17 North Carolina State Treasurer’s Annual Report • 2014-2015
R E T I R E M E N T SYS T E M S D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 18
The Retirement Systems Division (RSD) of the
Department of State Treasurer administers the North
Carolina Retirement Systems, death benefit plans,
disability plans, and the NC Supplemental Retirement Plans
(voluntary, defined contribution plans) created under North
Carolina state law. These plans and programs cover the vast
majority of active and retired public employees in the state.
The North Carolina Retirement Systems Division provides
benefits to more than 900,0001 members, including:
• Teachers
• State Government Employees
• Local Government Employees
• Firefighters
• Rescue Squad Workers
• Judges
• Law Enforcement Officers
• National Guard Members
• State Legislators
• Registers of Deeds
• Other public workers
A key purpose of the retirement systems and benefit plans is
to assist public employers in attracting and retaining high-quality
employees by providing valuable post-employment
benefits, including replacement income at retirement, as
well as death, disability, and survivor benefits. RSD staff
members continuously review features and options within
the benefit plans to ensure that all promised benefits are
attainable over time and are an efficient use of employees'
and taxpayers' contributions.
The Division is also responsible for communicating the
Treasurer’s retirement readiness mission — that all public
employees will be able to replace 80% of their pre-retirement
income for each year of their retirement.
The total assets of all state-administered pension funds
were valued at $89.6 billion as of June 30, 2015.
The total number of retirees receiving benefits for the year
ending June 30, 2015, was 267,779. The total dollar amount
of benefits paid for year ending June 30, 2015, was $5.6
billion, up from $5.3 billion in the previous fiscal year.
The Retirement Systems Division administers seven retirement systems and several smaller systems and supplemental
pension funds:
SYSTEM NUMBER OF
MEMBERS*
ASSETS
AS OF 6/30/14
TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM (TSERS) 644,434 $64.7 Billion
LOCAL GOVERNMENTAL EMPLOYEES' RETIREMENT SYSTEM
(LGERS) 238,890 $22.9 Billion
CONSOLIDATED JUDICIAL RETIREMENT SYSTEM (CJRS) 1,226 $535.6 Million
LEGISLATIVE RETIREMENT SYSTEM (LRS) 563 $28.2 Million
FIREFIGHTERS’ AND RESCUE SQUAD WORKERS' PENSION FUND
(FRSWPF) 56,017 $384.3 Million
NATIONAL GUARD PENSION FUND (NGPF) 15,399 $109.5 Million
LEGISLATIVE FUND (LF) (Closed to new entrants) 7 $0.0 Million
REGISTERS OF DEEDS' SUPPLEMENTAL PENSION FUND (RDSPF) 195 $46.8 Million
1 Actual member counts can be found in the actuarial valuations for each retirement system. All valuations are posted on the State Treasurer’s website here:
https://www.nctreasurer.com/ret/Pages/Valuation-Reports.aspx
*Member counts reflect 2014 calendar year values as of valuation date (12/31/2014).
R E T I R E M E N T SYS T E M S D I V I S I O N
The Division also offers a number of supplemental plans and benefit programs.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 19
TYPES OF SUPPLEMENTAL
PLANS/PROGRAMS
BENEFIT/SERVICE
Disability Benefits Provides equitable replacement income for eligible members of TSERS who are temporarily or
permanently disabled, as well as for LGERS members who are permanently disabled.
Social Security Benefits
Administers the state’s responsibility under the Social Security Agreement of July 16, 1951, which
is an agreement between the federal government and the state government allowing local
governments and other instrumentalities of the state to participate in Social Security.
Employee Death Benefits
Provides group death benefits for members of TSERS, CJRS and LGERS. These benefits include:
death benefits for active employees in TSERS, CJRS, LRS and LGERS; the Separate Insurance
Benefits Plan for active and retired state and local governmental law enforcement officers; and the
line of duty death benefit for certain civil service and emergency services workers.
Supplemental Retirement Income
Plan – NC 401(k)
Provides members with voluntary retirement savings plan to supplement retirement income.
Public Employee Deferred
Compensation Plan – NC 457
Provides members with voluntary retirement savings plan to supplement retirement income.
Teachers’ and Professional
Educators’ Investment Plan –
NC 403(b)
Provides teachers and school employees a voluntary retirement savings plan to supplement
retirement income.
NC 401(k)/NC 457 Lifetime
Income/Transfer Benefit
Enables members to receive an additional monthly benefit that they are eligible to receive under
TSERS or LGERS by transferring all or a portion of the balance in their NC 401(k) and/or NC 457.
Contributory Death Benefit for
Retired Members
Offers an optional benefit that gives retirees a one-time death benefit of up to $10,000.
Supplemental Insurance Provides retired members with optional supplemental insurance (i.e., dental, vision, accident
or life).
Retiree Health Benefits Acts as the Health Benefits Representative for retired members covered under the State Health
Plan of North Carolina.
R E T I R E M E N T SYS T E M S D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 20
LEGISLATIVE HIGHLIGHTS
The 2015 Session of the North Carolina General Assembly
enacted the following retirement-related legislation:
• Full funding for the Annual Required Contributions of the
retirement systems.
• Extension of the Qualified Excess Benefit Arrangement
(QEBA) sunset from Jan. 1, 2015, until August 1, 2016.
• Extension of the eligibility to participate in the NC 403(b)
Program to teachers and faculty of the North Carolina
Community College system.
• An increase of the monthly benefit for members of the
National Guard Pension Fund.
• Approval of funds to improve ORBiT’s self-service online
retirement system.
SUPPLEMENTAL PLAN AWARDS
The Supplemental Retirement Plans NC 403(b) Program
was recognized in 2015 by two national organizations and
granted two prestigious national awards.
The first was the “2015 Excellence in 403(b) Plans Award,”
presented by the National Association of Government
Defined Contribution Administrators (NAGDCA), for which
the development and implementation of the NC 403(b)
Program was recognized as an outstanding achievement in
defined contribution plan design.
The second award was granted by Pensions & Investments
Magazine and the Defined Contribution Institutional
Investment Association. Treasurer Cowell was named a
“2015 Innovator” for her efforts in providing a thoughtful,
multi-layered and unique legislative solution that would
help North Carolina’s frontline educators and school
staff to ultimately save more for retirement. In naming
Treasurer Cowell as the recipient, the NC 403(b) Program
was recognized for its “competitive pricing, institutional
investment management and strong oversight by the North
Carolina Supplemental Retirement Board of Trustees…while
helping NC educators reach retirement readiness.”
In addition, the NC 401(k) Plan was recognized for its
2014 National Save for Retirement Week communications
program by the National Association of Government
Defined Contribution Administrators. The NAGDCA
Leadership Recognition Award was presented to members
of the NC 401(k) Plan in the category of excellence and
innovation in retirement plan design, administration and/
or effective communication methods. The basis for the
award was its comprehensive and targeted outreach to
Millennial and Generation X males and females that led to
an enrollment boost in the plans of 4 percent.
All of these awards recognize the efforts being made in
support of the Treasurer’s mission to secure the retirement
of North Carolina’s public servants while also delivering
personalized services in that effort.
PLAN BENCHMARKING STUDY
In support of the Department’s overall mission to exercise
fiduciary oversight and provide outstanding customer
service that provides value to, and instills confidence by,
the state’s citizens, customers, and financial community,
the Supplemental Retirement Board of Trustees approved
a benchmarking study comparing the NC 401(k) and NC
457 Plans to a peer group of private and public sector
plans. In 2015, CEM Benchmarking completed its study of
16 comparable defined contribution plans and found that
the NC 401(k) and NC 457 Plans delivered a total net value
added well above its peer group for the five-year period
ending 2014. Total net value added measures to what
extent the plans’ investment options outperformed their
benchmark indices after fees.
INVESTMENT MANAGEMENT
21 North Carolina State Treasurer’s Annual Report • 2014-2015
I N V E S T M E N T MANAGEMENT D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 22
The Investment Management Division (IMD) serves as the investment arm for the Department of State Treasurer. This
Division employs over 30 investment professionals who provide the expertise for state government investing. IMD is
responsible for the management of the Short Term Investment Fund, the Pension Fund Investment Program (Pension
Fund), and the Ancillary Investment Programs. At the end of the fiscal year ending June 30, 2015, total assets of these
programs were $104.67 billion.
INVESTMENT PROGRAMS1
Pension Fund Investment Program Assets of the North Carolina Retirement Systems2 defined in N.C.G.S. 147-69.2(b)
(8) (the Retirement Systems). 85.58%%
Short-Term Investment Fund (STIF)
An internally managed portfolio of highly liquid fixed income securities. Investors
include the State’s General Fund, Highway Trust Fund, certain Retirement Systems
funds,3 and other investors.
12.38%
Ancillary Investment Program
Assets invested in programs other than the Short-Term Investment Fund for the
Escheat Fund, Public Hospital Funds, Local Government Other Post-Employment
Benefits Funds, and other non-Retirement Systems investors.
2.04%
1 See Statistical Tables, Table 2 (Summary of Investments by Participants) and its attached footnote for further details and an explanation of the differences in
terminology between different reports.
2 The Retirement Systems are the Teachers’ and State Employees’ Retirement System, the Consolidated Judicial Retirement System, the Firefighters’ and Rescue
Squad Workers’ Pension Fund, the Local Governmental Employees’ Retirement System, the Legislative Retirement System, the North Carolina National Guard
Pension Fund, and the Retiree Health Benefit Fund.
3 In this table and in Table 2 of the Statistical Tables, Retirement Systems assets in the STIF are listed within the “Short-Term Investment Fund” row only if held
in the operating accounts used to meet cash needs for payment of items such as member benefits and administrative expenses. All other Retirement Systems
assets in the STIF are listed under “Pension Fund Investment Program.”
The Treasurer is directed by statute to establish, maintain,
administer, manage and operate investment programs for
all funds on deposit, pursuant to the applicable statutes. In
doing so, the Treasurer has full powers as a fiduciary and,
with IMD staff, manages the investment programs so assets
may be readily converted into cash when needed.
In establishing the comprehensive management program,
the State Treasurer, utilizing a professional investment staff,
has developed an investment strategy for each portfolio
that recognizes the guidelines of the governing General
Statutes and provides appropriate diversification. In
addition to the Treasurer and IMD staff managing these
programs, the Investment Advisory Committee (IAC)
provides opinion on policies and general strategy for
achieving investment of the Pension Fund, including asset
allocation, in consultation with IMD staff.
I N V E S T M E N T MANAGEMENT D I V I S I O N
SHORT -TERM INVESTMENT FUND
The objective of the Short-Term Investment Fund (STIF) is to maximize income consistent with the principles of
preservation of capital and liquidity. The STIF is an internally managed portfolio of highly liquid fixed income securities.
These securities are primarily money market instruments and short- to intermediate-term U.S. Treasuries and Agencies.
All bank accounts of the State Treasurer are included in this portfolio, which serves as the main operating account for
state agencies. Because the Treasurer’s cash balances are ultimately subject to disbursement upon presentation of valid
warrants, the primary consideration in making investments is safety and liquidity; the secondary consideration is income.
For the fiscal year 2015, the STIF generated a cash return of 0.49 percent. The following graph1 provides the STIF’s asset
allocation as of June 30, 2015.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 23
STIF ASSET ALLOCATION AS OF 6/30/15
U.S. Treasuries
44.4%
Repurchase Agreements
13.0%
U.S. Agencies
42.5%
* Definitions:
U.S. Treasuries – government debt issued by the United States Department of the Treasury
Certificates of Deposit – financial product commonly offered to consumers by banks, thrift institutions and credit unions
Repurchase Agreements – short-term collateralized loan
U.S. Agencies – debt from a federal government agency or government sponsored enterprise such as the Government National
Mortgage Association (GNMA or Ginnie Mae), the Federal National Mortgage Association (FNMA or Fannie Mae), the Federal Home Loan
Mortgage Corporation (FHLMC or Freddie Mac), Federal Home Loan Banks and Federal Farm Credit Banks
1 This STIF asset allocation does not include cash in bank.
Certificate of Deposit
0.1%
I N V E S T M E N T MANAGEMENT D I V I S I O N
The following chart provides historic returns for STIF as of June 30, 2015.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 24
STIF FISCAL YEAR PERFORMANCE
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
6.0%
4.0%
2.0%
0.0%
STIF TOP TEN POSITIONS AS OF JUNE 30, 2015
Issuer Coupon Maturity Date Par Value ($)
SOUTH STREET REPO 0.250 7/1/2015 1,650,000,000
U S TREASURY NOTE 0.250 7/31/2015 600,000,000
U S TREASURY NOTE 0.375 8/31/2015 600,000,000
U S TREASURY NOTE 0.250 9/30/2015 600,000,000
U S TREASURY NOTE 0.250 10/31/2015 600,000,000
U S TREASURY NOTE 0.250 11/30/2015 600,000,000
U S TREASURY NOTE 0.375 1/31/2016 600,000,000
U S TREASURY NOTE 0.250 2/29/2016 600,000,000
U S TREASURY NOTE 0.375 3/31/2016 600,000,000
U S TREASURY NOTE 0.375 4/30/2016 600,000,000
3.6%
4.7%
5.2%
3.4%
1.6%
1.0%
0.6% 0.4% 0.4% 0.5%
I N V E S T M E N T MANAGEMENT D I V I S I O N
STIF Summary of Brokers Utilized During Fiscal Year 2014-15
Brokers are used to execute buy and sell orders on behalf of the fund. Below is a list of brokers used to facilitate trades of
securities during the fiscal year ending June 30, 2015.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 25
Bank of America
Barclays Capital
BNP Paribas
CastleOak Securities
Citigroup
Credit Suisse Securities
Deutsche Bank Securities
First Tennessee Bank
HSBC Securities
Jefferies & Company
JPMorgan Chase
KeyBanc Cap Mkts
Loop Capital
Mizuho Securities
Morgan Stanley
Raymond James
RBC Capital Markets
RBS Greenwich Capital
South Street Securities
Stifel Nicholaus
Suntrust Capital Markets
US Bank
Wells Fargo Securities
Williams Capital
PENSION FUND INVESTMENT PROGRAM REVIEW
The Investment Management Division’s goal is to maintain
the long-term strength of the Retirement Systems by
providing a long-term rate of return that approximates
the actuarial rate of return while simultaneously managing
risk in the portfolio. The Division conducts its activities
in accordance with the Investment Policy Statement for
North Carolina Retirement Systems, which is approved by
the Treasurer in consultation with the Investment Advisory
Committee. This policy covers investment objectives, asset
allocation ranges, rebalancing processes and other issues.
It is the policy of the Treasurer to invest consistent with the
following objectives:
A.Provide investment returns sufficient for the Fund to make
timely payment of statutory benefits to current and future
members and keep contribution rates at a reasonable level
over the long-term. To achieve this, long-term projected
investment returns should be generally consistent with
the actuarial assumed rate of return, unless otherwise
determined by the Treasurer.4
B. Avoid excessive volatility in contribution rates over the
intermediate-term by maintaining a moderate risk profile
and diversifying with respect to economic and financial risk
factors. It is acceptable to limit the use of return-seeking
strategies in order to avoid excessive volatility.
C. Additionally:
1. Achieve cost-efficiency in the overall investment program
2. Exceed composite benchmark returns for the Fund and
broad categories of investments within reasonable risk
limits and over market cycles
3. Ensure sufficient liquidity to meet the Fund’s obligations
over all time periods
4. Comply with all governing statutes as consistent with
fiduciary obligations
North Carolina’s defined benefit plans are consistently
ranked in the top ten of state retirement funding ratios.
4 The Retirement Systems’ actuary advises each applicable Retirement System’s Board of Trustees (or in the case of the Retiree Health Benefit Fund, the
Committee on Actuarial Valuation of Retired Employees’ Health Benefits) with respect to setting the actuarial assumed rate of return and annual required
contributions. These boards and the committee have been granted the authority by the legislature to set the actuarial assumed rate of return for the Fund,
which is currently 7.25% for the Retirement Systems other than the Retiree Health Benefit Fund and 4.25% for the Retiree Health Benefit Fund.
I N V E S T M E N T MANAGEMENT D I V I S I O N
Operating Policy
In all transactions executed for any investment program managed by the State Treasurer, the objective is to perform such
business in the best interest of the beneficial owners of the trusts’ assets, which for the Pension Fund are North Carolina’s
participating public employees, teachers, firefighters, police officers and other public workers.
In order to meet the investment objectives, a “Strategic Asset Allocation” is established through consideration of the Fund’s
projected actuarial liabilities, liquidity needs, risk tolerance, and the role that different asset categories and strategies are
expected to play in the overall portfolio construction. The Strategic Asset Allocation will be reviewed no less than annually
and a detailed asset-liability study will be conducted no less than triennially, assuming that benefit design and funding
policy is unchanged. The current Strategic Asset Allocation, consisting of targets and authorized ranges, is detailed below.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 26
Range
Row Labels Target Minimum Maximum
Growth 58.0% 37.0% 71.0%
Global Public Equity 42.0% 37.0% 47.0%
Non Core Real Estate 3.0% 0.0% 8.0%
Opportunistic Fixed Income 7.0% 0.0% 7.5%
Private Equity 6.0% 0.0% 8.8%
Inflation Sensitive & Diversifiers 11.0% 4.0% 16.0%
Core Real Estate 5.0% 2.0% 10.0%
Inflation Sensitive 6.0% 2.0% 7.5%
Multi-Strategy 2.0% 0.0% 4.0%
Rates & Liquidity 29.0% 24.0% 42.0%
Cash 1.0% 0.0% 10.0%
Investment Grade Fixed Income 28.0% 24.0% 32.0%
More information on NCRS asset types is available in the “Investment Policy Statement for North Carolina Retirement
Systems.” The Investment Policy Statement may be found on the Department of State Treasurer’s website at https://www.
nctreasurer.com/inv/Policies/InvestmentPolicyForNCRetirementSystems.pdf. A website page at https://www.nctreasurer.
com/inside-the-department/OpenGovernment/Pages/Department-Policies.aspx provides links to the Investment Policy
Statement and other Investment Management Division policies.
I N V E S T M E N T MANAGEMENT D I V I S I O N
Pension Fund Strategy
The tradition of conservative fiscal management has served North Carolina’s public workers and taxpayers well throughout
the years. The Pension Fund continues that tradition with a significant allocation in fixed income assets (bonds) combined
with reasonable exposure to more volatile growth-oriented assets and an increasingly diversified portfolio. The result of
this strategy is a fund that is a top performer in turbulent economic and financial market environments, but obtains lower
returns than the typical large public fund peer in bull markets. The below chart outlines the one-, three-, five- and 10-year
average returns and exposure to risk within the different percentiles of public funds in comparison to the performance and
exposure to risk of the North Carolina pension fund.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 27
NATIONAL AVERAGE GROSS OF FEES RETURNS AND EXPOSURE TO RISK
Returns 1 Year 3 Year 5 Year 10 Year
25th Percentile 4.00 11.61 11.48 7.12
Median 3.11 10.50 10.80 6.88
75th Percentile 2.43 9.45 9.95 6.30
NC Pension Fund 2.87% 9.67% 10.00% 6.60%
Risk*
25th Percentile 5.61 5.77 8.13 10.28
Median 5.03 5.12 7.42 9.67
75th Percentile 4.10 4.56 6.73 8.94
NC Pension Fund 4.23 4.45 6.26 8.07
Source: BNY Mellon Total Funds – Public Funds $1+ billion (Gross of Fees)
* Volatility of returns (Standard Deviation)
I N V E S T M E N T MANAGEMENT D I V I S I O N
Total Pension Fund Structure
As of June 30, 2015, the pension fund maintained a market value of $89.6 billion. IMD is constantly monitoring the overall
pension fund in an effort to manage risk. The following chart highlights the strategic asset allocation targets over the past
seven years.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 28
CURRENT AND HISTORICAL STRATEGIC TARGETS
June 2009 June 2010 June 2011 June 2012 June 2013 June 2014 June 2015
Growth
Public Equity 50.0% 48.5% 40.5% 40.5% 40.5% 40.5% 42.0%
Non-Core Real
Estate 3.6% 3.6% 4.8% 4.8% 4.8% 4.8% 3.0%
Opportunistic
Fixed Income 0.0% 1.5% 4.5% 4.5% 4.5% 4.5% 7.0%
Private Equity 3.2% 3.2% 4.5% 4.5% 4.5% 4.5% 6.0%
Inflation Sensitive
and Diversifiers
Core Real Estate 2.4% 2.4% 3.2% 3.2% 3.2% 3.2% 5.0%
Inflation
Sensitive 0.0% 1.5% 4.5% 4.5% 4.5% 4.5% 6.0%
Multi-Strategy 1.4% 1.4% 2.0% 2.0% 2.0% 2.0% 2.0%
Rates and Liquidity
Investment
Grade Fixed
Income
39.5% 38.0% 36.0% 36.0% 36.0% 36.0% 28.0%
Cash Portfolio 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.0%
IMD utilizes rebalancing to ensure the overall portfolio weights stay in line with the target ranges. Asset allocation
and a disciplined approach to rebalancing are important tools to help control the level of risk that an investment
portfolio experiences.
I N V E S T M E N T MANAGEMENT D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 29
PENSION FUND ASSET ALLOCATION AS OF JUNE 30, 2015
Market Value
($000) Portfolio Weight Target Range
Minimum Maximum
Growth $53,057,390 59.24% 58.0% 37.0% 71.0%
Public Equity 39,792,298 44.43% 42.0% 37.0% 47.0%
Non-Core Real
Estate 3,652,612 4.08% 3.0% 0.0% 8.0%
Opportunistic
Fixed Income 5,438,220 6.07% 7.0% 0.0% 7.5%
Private Equity 4,174,260 4.66% 6.0% 0.0% 8.75%
Inflation Sensitive
and Diversifiers 8,358,114 9.33% 11.0% 4.0% 16.0%
Core Real Estate 3,594,338 4.01% 5.0% 2.0% 10.0%
Inflation
Sensitive 4,763,776 5.32% 6.0% 2.0% 7.5%
Multi-Strategy 1,686,815 1.88% 2.0% 0.0% 4.0%
Rates and Liquidity 26,473,433 29.55% 29.0% 24.0% 42.0%
Cash 1,060,871 1.18% 1.0% 0.0% 10.0%
Investment
Grade Fixed
Income
25,412,562 28.37% 28.0% 24.0% 32.0%
Grand Total 89,575,752 100.00%
I N V E S T M E N T MANAGEMENT D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 30
Total Fund Performance
The Pension Fund has outperformed its custom
benchmark by 0.8% over the past fiscal year. The
following chart provides fiscal year returns for each
asset class within the total Pension Fund. Total
For the fiscal year 2015, the fund returned 2.25 percent,
net of fees. The charts below provide a snapshot for the
total Pension Fund’s annualized performance and
performance by asset class for one-, three-, five- and
10-year periods.
2015 FISCAL YEAR RETURNS
Growth 				 2.91%
Public Equity 			 1.14%
Private Equity 			 9.58%
Non-Core Real Estate 		 19.60%
Opportunistic Fixed Income 	 (0.52)%
Rates & Liquidity 			 2.07%
IG Fixed Income 		 2.09%
Cash 				 0.48%
Inflation Sensitive & Diversifiers 	 (1.98)%
Inflation Sensitive 		 (8.01)%
Core Real Estate 		 7.00 %
Multi-Strategy 			 1.48%
Total Pension Plan 		 2.25%
TOTAL PENSION FUND ANNUALIZED PERFORMANCE
Fiscal 2015 Tr. 3 Yr Tr. 5 Yr Tr. 10 Yr Tr. 15 Yr
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2.3%
1.5%
9.1%
7.8%
9.5%
8.8%
6.2%
5.7% 5.6%
5.2%
Total Pension Fund Custom Benchmark*
*As of June 30, 2015 the Total Pension Implementation benchmark is a blend of the Asset Class Benchmarks at policy weights.
It is currently weighted as follows: 58% Growth Benchmark, 29% Rates & Liquidity Benchmark, 11% Inflation Sensitive & Diversifiers
Benchmark, and 2% Multi-Strategy Benchmark
I N V E S T M E N T MANAGEMENT D I V I S I O N
The following chart details performance by asset class and also provides the benchmarks or target returns.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 31
ANNUALIZED PERFORMANCE AS OF JUNE 30, 2015, NET OF FEES
1-Year 3-Year 5-Year 10-Year 15-Year
Growth
Growth Benchmark1
2.9%
1.4%
13.8%
12.0%
12.8%
11.9%
6.2%
5.8%
--
Global Equity Investment Portfolio
Custom Global Equity Benchmark2
1.1%
0.9%
14.5%
13.3%
13.0%
12.2%
6.3%
5.7%
4.3%
3.4%
Private Equity Investment Portfolio
Custom Private Equity Benchmark3
9.6%
6.3%
11.1%
11.7%
11.0%
12.4%
8.9%
11.3%
0.8%
8.2%
Non-Core Real Estate Investment Portfolio
Custom Non-Core Real Estate Benchmark4
19.6%
8.8%
15.0%
11.0%
14.6%
11.9%
5.2%
5.1%
--
Opportunistic Fixed Income Investment Portfolio
Custom Opportunistic Fixed Income Benchmark5
-0.5%
-2.9%
9.7%
2.8%
8.9%
3.1%
--
--
Rates & Liquidity
Rates & Liquidity Benchmark6
2.1%
2.2%
2.4%
2.1%
4.8%
4.6%
5.6%
5.2%
6.8%
6.5%
Fixed Income Portfolio
Custom Fixed Income Benchmark7
2.1%
2.3%
2.4%
2.2%
4.8%
4.7%
5.6%
5.3%
6.8%
6.5%
Cash Portfolio
Custom Cash Benchmark8
0.5%
0.0%
--
--
--
--
Inflation Sensitive and Diversifiers
Inflation Sensitive and Diversifiers Benchmark9
-2.0%
-0.7%
3.4%
4.1%
2.2%
5.1%
2.6%
2.2%
--
Inflation Sensitive
Inflation Sensitive Custom Benchmark10
-8.0%
-9.4%
-1.1%
-1.3%
-4.8%
-2.0%
2.0%
4.3%
--
Core Real Estate Investment Portfolio
Custom Core Real Estate Benchmark11
7.0%
10.6%
10.3%
11.3%
11.9%
13.3%
5.6%
6.0%
--
Multi-Strategy Investment Portfolio
Custom Multi-Strategy Benchmark12
1.5%
0.3%
11.8%
11.4%
10.3%
8.7%
6.3%
8.5%
--
Total Pension Plan
Implementation Benchmark13
Long-Term Policy Benchmark14
2.3%
1.5%
0.3%
9.1%
7.8%
7.4%
9.5%
8.8%
8.5%
6.2%
5.7%
6.0%
5.6%
5.2%
5.3%
1 The Growth Benchmark is a blend of the Public Equity Benchmark, Private Equity Benchmark, Non-Core Real Estate Benchmark, & Opportunistic FI Benchmark at policy weights.
2 The Public Equity Benchmark is the dynamically weighted combination of the MSCI ACWI IMI Net (Long-Only) and a beta adjusted MSCI ACWI IMI Net (Hedged Equity).
3 The Private Equity Benchmark is comprised of the following Burgiss Group Private iQ indices: 50% Buyout, 20% Venture Capital, and 30% Special Situations
and Distressed Securities.
4 The Non-Core Real Estate Benchmark is comprised of the following Burgiss Group Private iQ indices: 80% U.S. Non-Core Real Estate (Opportunistic and
Value-Added) and 20% Non-U.S. Non-Core Real Estate (Opportunistic and Value-Added).
5 The Opportunistic Fixed Income Benchmark is a comprised of 50% HFRX Distressed Securities Index, 20% HFRX Relative Value Index, 15% Credit Suisse
Leveraged Loan Index, and 15% BOAML High Yield Index.
6 The Rates & Liquidity Benchmark is a blend of the IG Fixed Income Benchmark and the Cash Benchmark at policy weights.
7 The IG Fixed Income Benchmark is comprised 10% iMoneyNet First Tier Institutional Money Market Funds Net Index and 90% custom BOAML Core Investment
Grade Index. The custom BOAML core index comprised of the following weightings: 30% BOAML 5+ Years Governments, 35% BOAML 5+ Years Investment
Grade Corporates, and 35% BOAML Mortgage Master.
8 The Cash Benchmark is the iMoneyNet First Tier Institutional Money Market Funds Net Index.
9 The Inflation Sensitive & Diversifiers Benchmark is a blend of the Inflation Sensitive Benchmark and the Core Real Estate Benchmark at policy weights.
10 The Inflation Sensitive Benchmark is the dynamically weighted combination of the Bank of America Merrill Lynch 1-3 Years U.S. Inflation-Linked Treasury
Index (TIPS), the Bloomberg Commodities Index (Commodities), and a combination of the benchmarks of investments classified within Private Natural
Resources or Other Real Assets and Diversifiers.
11 The Core Real Estate Benchmark is comprised of 80% NCREIF ODCE Net and 20% FTSE EPRA NAREiT Global Index.
12 The Multi-Strategy Benchmark is comprised of a dynamically weighted combination of the HFRX ED: Multi-Strategy Index, net of fees, and the market value
weighted benchmarks for any other total fund strategies within the Portfolio.
13 The Implementation Benchmark is a blend of the Asset Class Benchmarks at policy weights. It is currently weighted as follows: 58% Growth Benchmark,
29% Rates & Liquidity Benchmark, 11% Inflation Sensitive & Diversifiers Benchmark, and 2% Multi-Strategy Benchmark
14 The Long-Term Policy Benchmark is comprised of 57% MSCI ACWI IMI Net, 33% BOAML 5+ Years U.S. Treasury Index, 6% Bloomberg Commodity Index, and
4% BOAML 1-3 Years U.S. Inflation-Linked Treasury Index.
I N V E S T M E N T MANAGEMENT D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 32
Cost
In order to best maximize returns with limited internal
resources, the Investment Management Division utilizes
external managers for a portion of the fund.
Over time, the Department, with the advice and counsel of
the Investment Advisory Committee, has used a lower risk
and lower cost approach to investing the North Carolina
Retirement System trust funds. While costs have risen
somewhat over time as more diverse external investment
strategies were pursued, our all-in cost of investing the
retirement trust fund remains modest and we continue to
actively seek out cost-efficiencies in our operations.
During the fiscal year, the Department engaged CEM
Benchmarking, a leading independent cost and performance
analysis firm, to review our cost structure for calendar year
2014. The report showed that our cost structure was below
those of most of our institutional peers. This leads to savings
of about $120 million per year compared to the median
peer. Importantly, after deducting all fees, incentives, and
expenses for the trust fund we exceeded our performance
benchmarks, which are a positive for plan beneficiaries,
employers, and taxpayers. At the same time, we continue
to proactively target improvements in cost-efficiency,
transparency, risk management, and compliance.
TABLE X: CALENDAR YEAR 2014 NCRS COSTS OF
INVESTMENT OPERATIONS COMPARED TO PEERS
(EXPRESSED IN BASIS POINTS WHERE 50 BASIS POINTS
EQUALS 0.50%)
		 TOTAL (bps)
Median Peer 		 63.4
NCRS 			 49.9
Percentile 		 36%
Source: CEM [Cost Effectiveness Measurement]
Benchmarking Inc., The peer group consists of 15 U.S.
public pension funds managing from $42 billion to $150
billion. The median peer managed $74 billion versus NCRS’
$89 billion average size during 2014. CEM Benchmarking’s
methodology incorporates default average expenses for
underlying investment managers held within fund-of-fund
vehicles, but excludes carry/performance fees for private
investments because most peers do not provide such data.
All such fees and expenses have been deducted from all
reported investment returns.
Table Y provides further detail on fees and incentives
paid to external investment managers for the fiscal year.
Additional detail is available upon request.
TABLE Y: TOTAL NCRS EXTERNAL FEES PAID FY 2014-2015
Management Fees Incentive Fees Total Fees Portfolio Market
Value
Ratio of Fees to
Market Value
Public Equity $110,742,096 $3,630,839 $114,372,934 $39,792,298,000 0.29%
Private Equity $52,157,605 $34,341,143 $86,498,748 $4,174,260,000 2.07%
Real Estate $67,739,528 $125,996,974 $193,736,502 $7,246,950,000 2.67%
Multi-Strategy $4,150,884 $35,891 $4,186,776 $1,686,815,000 0.25%
Opportunistic Fixed
Income $59,362,980 $28,959,541 $88,322,521 $5,438,220,000 1.62%
Cash $0 $ 0 $ 0 $1,060,871,000 0.0%
IG Fixed Income $0 $ 0 $ 0 $25,412,562,000 0.0%
Non-Core Fixed Income $168,765 $4,689,784 $4,858,549 - -
Inflation Sensitive $45,767,411 $5,671,876 $51,439,287 $4,763,776,000 1.08%
TOTAL $339,920,504 $198,636,265 $538,556,768 $89,575,752,000 0.60%
* Total management fees previously reported differ from the above data due to accrual and timing issues. This includes either accruals
of management fees owed but not paid at year end or the timing difference between the actual charge and the booking of actual costs
that occurs in certain other investments.
** Consistent with industry convention, cost figures do not include the fees and expenses of investment managers that are held within
fund-of-fund vehicles. Such fees and expenses have been deducted from all reported investment returns.
I N V E S T M E N T MANAGEMENT D I V I S I O N
The below table provides additional transparency into the compensation collected by investment managers within fund
of fund structures. This compensation is determined by the fund of fund manager through contracts with the underlying
manager. This compensation is deducted from all reported returns. They are not included in the compensation disclosed
in Table Y.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 33
Management Fees Incentive Fees Market Value Ratio of Fees to
Market Value
NCRS Fund of Funds $38,271,569 $35,790,921 $2,625,433,997 2.82%
Note: Some legacy fund of funds do not disclose the compensation to underlying funds and are, therefore, not reported in the above table.
I N V E S T M E N T MANAGEMENT D I V I S I O N
FIXED INCOME
As of June 30, 2015, the fixed income allocation maintained a
market value of $25.4 billion, representing 28.4 percent of the
Pension Fund. The Pension Fund’s core Long-Term Investment
Portfolio (LTIP) represented the bulk of the fixed income assets
with a market value of $22.7 billion. The balance of the fixed
income assets was in non-core strategies.
Core Fixed Income Structure
The LTIP is an internally managed investment grade fixed
income portfolio that takes an enhanced approach to
generating excess returns versus an assigned benchmark.
The portfolio is structured to provide a long duration
profile that better matches the pension fund’s longer
duration liability stream. Because of this approach, the
duration of the portfolio tends to be relatively long versus
an intermediate duration fixed income portfolio. Duration
is a measure of a bond’s price sensitivity to changes in
interest rates. The portfolio comprises U.S. Treasuries,
Agencies, Corporate Bonds, and Governmental National
Mortgage Association (GNMA) mortgage-backed securities.
The following charts display the allocation of the LTIP by
investment and by quality, or credit rating, of investment.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 34
LTIP SECTOR ALLOCATION
(AS OF 6/30/15)
Cash
1.7%
Government
(U.S. Treasuries
& Agencies)
26.6%
Corporates
35.7%
LTIP QUALITY* ALLOCATION
(AS OF 6/30/15)
U.S. Agencies
(Debt & MBS)
40.6%
A
17.7%
BBB
12.2%
*Credit Quality based on Moody’s Ratings
Mortgage-Backed
36.0%
U.S. Treasuries
23.0%
High Yield
1.1%
AA
5.0%
AAA
0.4%
I N V E S T M E N T MANAGEMENT D I V I S I O N
Core Fixed Income Performance
For the fiscal year, the LTIP return was 2.23% net of fees versus a benchmark return of 2.52%. The slight underperformance
to the benchmark was due to drag from cash exposures and the short duration position relative to the benchmark.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 35
LONG TERM INVESTMENT PORTFOLIO ANNUALIZED PERFORMANCE
8.0%
6.0%
4.0%
2.0%
0.0%
Fiscal 2015 Tr. 3 Yr Tr. 5 Yr Tr. 10 Yr Tr. 15 Yr
LTIP Custom Fixed Income Benchmark
2.2% 2.5% 2.4%
2.2%
4.8% 4.7%
5.7%
5.3%
6.8%
6.5%
I N V E S T M E N T MANAGEMENT D I V I S I O N
Below are the lists of the top 10 corporate exposures within the LTIP and a summary of brokers utilized to trade securities
in the portfolio.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 36
LTIP TOP 10 CORPORATE POSITIONS AS OF JUNE 30, 2015
Corporate Issuer % of LTIP
General Electric 1.1%
JP Morgan 0.8%
Goldman Sachs 0.8%
Wells Fargo 0.7%
Wal-Mart 0.7%
Bank of America 0.6%
HSBC 0.6%
ConocoPhillips 0.5%
Comcast 0.5%
Verizon 0.5%
LTIP SUMMARY OF BROKERS UTILIZED DURING FISCAL YEAR 2015
Bank of America
Barclays Capital
BB&T Capital Markets
BNP Paribas
BNY Mellon
Cantor Fitzgerald
Citigroup
Credit Suisse Securities
Cross Point Capital
First Tennessee Bank
Goldman Sachs
HSBC Securities
Jefferies & Company
JPMorgan Chase
KeyBanc Cap Mkts
Mizuho Securities
Morgan Stanley
Raymond James
RBS Greenwich Capital
Scotia Capital
Stifel Nicolaus
SunTrust Capital Markets
UBS Securities
US Bank
Wells Fargo Securities
Williams Capital
Non-Core Fixed Income Structure
The non-core component consists of a liquidity allocation to
the Short-Term Investment Fund.
As of June 30, 2015, the allocation to STIF was $2.68 billion.
Non-Core Fixed Income Performance
The non-core fixed income composite posted a return of
0.48 percent for the fiscal year.
I N V E S T M E N T MANAGEMENT D I V I S I O N
PUBLIC EQUITY
The Public Equity portfolio ended fiscal year June 30, 2015
at $39.8 billion, with $17.3 billion in U.S. equity strategies,
$17.0 billion in non-U.S strategies, $2.8 billion in global
strategies, and $1.5 billion in hedged equity strategies. As a
percentage of the pension fund’s assets, the Public Equity
allocation was 44.4 percent on June 30, 2015.
The Public Equity portfolio maintains prudent diversification
within the broad equity market across size and valuation
style. Valuation style divides stocks into value, growth,
and core. Value stocks are characterized by low valuation
multiples such as price to book (P/B) and price to earnings
(P/E). Growth stocks typically have higher-than-average
sales and earnings growth prospects. Core is a blend
between value and growth. The portfolio is also categorized
into U.S. Large-Cap, U.S. Mid-Cap, U.S. Small-Cap and
Non-U.S. investments.
All investments of the Public Equity portfolio are managed
externally according to one of two different strategies:
passive or active. Passive investments track existing indexes
in relatively efficient markets. Actively managed portfolios
give the manager discretion to make investment decisions
within the parameters of the portfolio’s mandate with intent
to outperform the benchmark over time. The following
charts provide percentage of distribution between type,
style, and strategy.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 37
PUBLIC EQUITY ACTIVE & PASSIVE
ALLOCATION
STRATEGY ALLOCATION
Cash /
Transition
3.1% Active
49.4%
PUBLIC EQUITY STYLE ALLOCATION
STYLE ALLOCATION
Cash /
Transition
6.8%
Core
58.2%
Passive
47.5%
Growth
18.0%
Value
16.9%
I N V E S T M E N T MANAGEMENT D I V I S I O N
Public Equity Performance
The graph below illustrates the fiscal year performance against the benchmark, as well as the three-, five-, 10- and 15-year
trailing returns.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 38
PUBLIC EQUITY SIZE ALLOCATION
Emerging Int’l
4.3%
Dom Large Cap
39.4%
Developed Int’l
35.4%
Frontier
0.5%
Int’l Small Cap
2.4%
Dom Small Cap
3.4%
Dom. Mid Cap
4.3%
Cash / Transition
3.1%
Global
7.1%
Rebalance 0%
Equity Hedge 0%
PUBLIC EQUITY INVESTMENT PORTFOLIO ANNUALIZED PERFORMANCE
Fiscal 2015 Tr. 3 Yr Tr. 5 Yr Tr. 10Yr Tr. 15 Yr
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1.1% 0.9%
14.5%
13.3%
13.0%
12.2%
6.3%
5.7%
4.3%
3.4%
Public Equity Investment Portfolio Custom Equity Benchmark
I N V E S T M E N T MANAGEMENT D I V I S I O N
REAL ESTATE
As of June 30, 2015, the Core Real Estate Investment
Portfolio (Core -REIP) was valued at $3.59 billion or 4.0%
allocation as a percentage of pension fund assets. The Non-
Core REIP was valued at $3.65 billion or 4.1% allocation as a
percentage of pension fund assets. These portfolios consist
of both open-end and closed-end commingled funds as
well as separate account mandates.
The Core REIP seeks returns from income and capital
appreciation by investing in core public equity and private
equity real estate. The Non-Core REIP invests in value-added
and opportunistic strategies. Core real estate is
represented by well-located, stable properties with high
occupancy levels. Core investment returns are primarily
driven by property income with debt levels typically
at 0-50 percent of property value. Value-added real
estate generally requires some additional leasing and
moderate tenant improvements before the properties are
sold. Returns are derived from both income and capital
appreciation with debt levels ranging from 50 percent to
65 percent of property value. Upon completion of value-added
strategies, assets become core and can be sold at
premium valuations. Opportunistic real estate investments
require significant capital expenditures. Returns are derived
from capital appreciation due to the lack of “going-in”
cash flows. Opportunistic strategies include development,
redevelopment, restructuring, land and distressed
properties. These investments have high debt levels
typically between 65 percent and 80 percent of property
value. The chart below outlines these allocations:
North Carolina State Treasurer’s Annual Report • 2014-2015 | 39
CORE REAL ESTATE STRATEGY
ALLOCATION
Private
Equity
Core RE
84%
Public Equity
Real Estate
16%
NON-CORE REAL ESTATE STRATEGY
ALLOCATION
Non Core RE
Value Added
33%
Non Core RE
Opportunistic
67%
I N V E S T M E N T MANAGEMENT D I V I S I O N
In addition, the analysis of new investments focuses on location and property types. Both Core REIP and Non-Core REIP
invest in a variety of property types including office, industrial, retail, multi-family residential, single-family residential,
lodging, mixed-use, storage, land and debt. The chart below displays the percentage of each property type allocation
as of June 30, 2015.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 40
PROPERTY TYPE ALLOCATION
Office Residential Hotel Retail Industrial Mixed Use Other
50
45
40
35
30
25
20
15
10
5
0
35.9
22.8
49.5
Total RE Core RE Non-Core RE
4.1 2.6
5.6
3.0
5.8
0
6.0
8.3
3.7
15.8
8.8
23.0
27.2
37.8
16.3
6.7
11.5
1.8
I N V E S T M E N T MANAGEMENT D I V I S I O N
Geographically, both Core REIP and Non-Core REIP have a U.S. focus, and is diversified among the South, East, West and
Midwest regions. Investment exposure outside of North America is approximately 16 percent, with the majority split between
Europe and Asia. The following chart shows both the US and global geographic allocations as of June 30, 2015.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 41
GEOGRAPHIC DIVERSIFICATION
East West South Midwest Foreign
45
40
35
30
25
20
15
10
5
0
Total RE Core RE Non-Core RE
33.6
41.8
25.4
28.2
26.4
30.0
16.7
21.7
11.7
4.1 4.6
3.6
17.5
21.9
12.9
NCRS NON-CORE REAL ESTATE
FOREIGN INVESTMENTS
Latin America
$73.1m
8.8%
Europe
$439.3m
53.1%
NCRS CORE REAL ESTATE
FOREIGN INVESTMENTS
Asia
$108.8m
23%
Canada $9.2m
1.9%
Asia $239.6m
28.9%
Europe
$328.4m
69.4%
Australia
Pacific $23.6m
5%
GLOBAL GEOGRAPHIC DIVERSIFICATION
Australian
Pacific $65.2m
7.9%
Canada $6.7m
0.8%
Foreign Other $3.0m, 0.4%
Africa $0.8m, 0.1%
Foreign Other
$1.1m
0.2%
Latin America
$2.1m
0.4%
I N V E S T M E N T MANAGEMENT D I V I S I O N
Real Estate Performance
For the fiscal year 2015, the Core REIP returned 7.0 percent, net of fees, underperforming its custom benchmark return
of 10.6 percent. Non-Core REIP returned 19.6 percent, net of fees, outperforming its custom benchmark return of 8.8%
The Core Real Estate Benchmark is comprised of 80% NCREIF ODCE Net and 20% FTSE EPRA NAREiT Global Index. The
Non-Core Real Estate Benchmark is comprised of the following Burgiss Group Private iQ indices: 80% U.S. Non-Core Real
Estate (Opportunistic and Value-Added) and 20% Non-U.S. Non-Core Real Estate (Opportunistic and Value-Added).
North Carolina State Treasurer’s Annual Report • 2014-2015 | 42
CORE REAL ESTATE INVESTMENT PORTFOLIO ANNUALIZED PERFORMANCE
15.0%
10.0%
5.0%
0.0%
Fiscal 2015 Tr. 3 Yr Tr. 5 Yr Tr. 10 Yr
Core Real Estate Investment Portfolio Custom Real Estate Benchmark
7.0%
10.6% 10.3%
11.3% 11.9%
13.3%
5.6% 6.0%
NON-CORE REAL ESTATE INVESTMENT PORTFOLIO ANNUALIZED PERFORMANCE
30.0%
20.0%
10.0%
0.0%
Fiscal 2015 Tr. 3 Yr Tr. 5 Yr Tr. 10 Yr
Non-Core Real Estate Investment Portfolio Custom Real Estate Benchmark
19.6%
8.8%
15.0%
11.0%
14.6%
11.9%
5.2% 5.1%
I N V E S T M E N T MANAGEMENT D I V I S I O N
PRIVATE EQUITY
As of June 30, 2015, the Private Equity investment
portfolio maintained a market value of approximately $4.2
billion, representing 4.66 percent of the pension fund.
The portfolio invests in limited partnerships and other
limited liability entities, which are externally managed
by experienced private equity investment professionals.
The Private Equity investment portfolio has three major
subcomponents: Growth, Buyout, and Special Situations.
Growth includes venture capital and growth equity
strategies. Growth equity investments, most often minority
investments, are in relatively mature companies that are
looking for capital to expand or restructure operations,
enter new markets or finance a major acquisition without
a change of control of the business. Venture capital refers
to equity investments made, typically in less mature
companies, for the launch of a seed or start-up company,
early stage development, or expansion of a less mature
business. Buyout refers to a strategy of making control
investments as part of a transaction in which a company,
business unit, or business assets are acquired from the
current owners typically with the use of financial leverage.
Special Situations includes a broad set of strategies such as
distressed for control, secondary strategies, co-investment,
and other strategies not classified into buyout or growth.
The Private Equity portfolio’s allocation to these
subcomponents is displayed below.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 43
PRIVATE EQUITY STRATEGY ALLOCATION
(BASED ON COMMITMENTS)
Venture
Capital
18.7%
Special
Situations
25.5%
Buyout
47.6%
Growth Equity
8.2%
I N V E S T M E N T MANAGEMENT D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 44
PRIVATE EQUITY INVESTMENT PORTFOLIO ANNUALIZED PERFORMANCE
Fiscal 2015 Tr. 3 Yr Tr. 5 Yr Tr. 10Yr Tr. 15 Yr
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
9.6%
6.3%
11.1% 11.7%
11.0%
12.4%
8.9%
11.3%
0.8%
8.2%
Private Equity Investment Portfolio Private Equity Custom Benchmark
Private Equity Performance
For the fiscal year, the Private Equity investment portfolio returned 9.58 percent, outperforming its benchmark return
of 6.27 percent.
I N V E S T M E N T MANAGEMENT D I V I S I O N
OPPORTUNISTIC FIXED INCOME PORTFOLIO
As of June 30, 2015, the Opportunistic Fixed Income portfolio
maintained a market value of approximately $5.4 billion,
representing 6.1 percent of the pension fund. The portfolio
has a target weight of 7.0 percent and invests in a diversified
mix of credit-focused investment vehicles managed by
experienced investment advisors. The vehicles include
hedge funds, capital drawn down, and hybrid vehicles. The
Opportunistic Fixed Income Strategies investment portfolio
has four major subcomponents: Traditional Corporate
Credit, Distressed Debt, Hedged Fixed Income, and Special
Situations. Traditional Corporate Credit are strategies that
invest in high yield bonds and bank loans. Distressed Debt
are predominantly strategies that trade distressed debt, but
occasionally actively participate in restructurings and seek
control post-reorganization of target issuers. Hedged Fixed
Income includes hedged implementations of market neutral
strategies, relative value strategies, and multi-strategy
(i.e., predominantly fixed income) utilizing non-investment
grade instruments. Special Situations includes mezzanine,
direct lending, and structured credit. The latter can include
mortgage- and other asset-backed securities and financings.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 45
STRATEGY ALLOCATION
Distressed Credit
16.3%
Special Situations
11.7%
Trad Corp Credit
8.5%
Hedged
Fixed Income
63.5%
Opportunistic Fixed Income Portfolio Performance
For the fiscal year, the Opportunistic Fixed Income Portfolio returned -0.52 percent, outperforming its benchmark return of
-2.85 percent. The Opportunistic Fixed Income Portfolio’s outperformance is attributable to a diversified and conservative
investment approach that has served the plan well during periods of increased uncertainty and during periods of
economic recovery.
I N V E S T M E N T MANAGEMENT D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 46
OPPORTUNISTIC FIXED INCOME ANNUALIZED PERFORMANCE
Fiscal 2014 Tr. 3 Yr 	 Tr. 5 Yr
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-0.5%
9.7%
2.8%
8.9%
Opportunistic Fixed Income Strategies Opportunistic Fixed Income Custom Benchmark
-2.9%
3.1%
I N V E S T M E N T MANAGEMENT D I V I S I O N
INFLATION SENSITIVE PORTFOLIO
As of June 30, 2015, the Inflation Sensitive Protection
Portfolio maintained a market value of $4.8 billion,
representing 5.3 percent of the pension fund. The
portfolio invests in a diversified mix of inflation sensitive-linked
investment vehicles managed by experienced
investment advisors. The portfolio is divided into three
subcomponents: Publicly Trade Natural Resources, Private
Natural Resources, and Real Assets and Other Diversifiers.
Publicly Traded Natural Resources are strategies that invest
in commodity and natural resource public equity and public
debt using long-only or hedged implementations. Private
Natural Resources are strategies making non-public market
equity or debt investments in energy, agriculture, and other
natural resources implementations. Real Assets and Other
Diversifiers are strategies including infrastructure, real
assets (e.g., ships, airplanes, rail cars, mines, real estate,
etc.), royalties, and combinations of any of this and the
other subcomponents whose primary purpose is providing
protection against risks associated with Inflation Sensitive.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 47
Inflation Sensitive Protection Performance
For the fiscal year, the Inflation Sensitive Protection Portfolio returned -8.01 percent, outperforming its benchmark return
of -9.41 percent.
STRATEGY ALLOCATION
Real Assets
& Other Diversifiers
32.8%
Private Natural
Resources
37.2%
Public Natural
Resources
29.9%
I N V E S T M E N T MANAGEMENT D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 48
INFLATION INVESTMENT PORTFOLIO ANNUALIZED PERFORMANCE
Fiscal 2014 Tr. 3 Yr Tr. 5 Yr Tr. 10 Yr
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-8.0%
-9.4%
Inflation Investment Portfolio Inflation Custom Benchmark
-1.1% -1.3%
-4.8%
-2.0%
2.0%
4.3%
I N V E S T M E N T MANAGEMENT D I V I S I O N
ANCILLARY INVESTMENT PROGRAM REVIEW
The Ancillary Investment Program’s objective is to
generate returns that match or exceed those of the
appropriate benchmarks over a three- to five-year basis
for the Escheats Fund, Public Hospital Funds, the Local
Government Other Post-Employment Benefits Program,
and other non-pension assets.
ESCHEAT FUND
Pursuant to G.S. 147-69.2(b)(12), up to 20 percent of the
Escheat Investment Fund’s assets can be invested in the
authorized Public Equity, Real Estate and Private Equity
asset classes discussed above. For the fiscal year ending
June 30, 2015, the Escheat Fund maintained a total portfolio
market value of $440.0 million, with $404.5 million invested
in fixed income, and $35.5 million invested in private
equity. The following table and chart provide the Escheat
Fund’s asset allocation and each allocation’s percentage
of the total Escheat Fund as of June 30, 2015. Actual
allocations versus target weights reflect the relatively large
appropriations out of the fund in recent years. The policy is
expected to be revisited in the upcoming fiscal year.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 49
ESCHEAT INVESTMENT FUND ASSET ALLOCATION AS OF JUNE 30, 2015
Market Value Portfolio Weight Target Weight
Fixed Income $404,505 91.9% 80.0%
Public Equity $0 0.0% 12.0%
Real Estate $0 0.0% 4.0%
Private Equity $35,505 8.1% 4.0%
Escheat Fund $440,010 100% -
ESCHEAT INVESTMENT FUND ASSET ALLOCATION
Private Equity
8.1%
Short Term Fixed
66.5%
Long Term Fixed
25.4%
I N V E S T M E N T MANAGEMENT D I V I S I O N
PUBLIC HOSPITALS
Pursuant to G.S. 147-69.2(b2), North Carolina public hospitals
are allowed to invest assets in the authorized Public Equity
and Fixed Income asset classes discussed above.
As of June 30, 2015, the market value for the New Hanover
Hospital portfolio was $180.6 million, the market value for
Columbus Regional Healthcare System was $12.4 million,
the market value for the Margaret R. Pardee Hospital was
$12.6 million, and the market value for the Watauga Medical
Center was $31.9 million.
OTHER POST-EMPLOYMENT BENEFITS FUND
Pursuant to G.S. 159-30.1(b), the assets of Other Post-
Employment Benefits (OPEB) Trusts can be deposited with
the State Treasurer for investment according to G.S. 147-
69.2(b4). The assets are allocated as follows: STIF, LTIP and
authorized Equity funds. As of June 30, 2015, there were a
total of 16 participants with assets totaling $184.4 million.
OTHER NON-PENSION LONG-TERM INVESTMENT
PORTFOLIO PARTICIPANTS
As of June 30, 2015, the aggregate market value of other
non-pension participants invested in the Long-Term
Investment Portfolio was $1.5 billion.
BOND PROCEEDS FUND
The assets of the Bond Proceeds Fund, managed by Sterling
Capital, totaled $281.4 million as of June 30, 2015.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 50
STATE & LOCAL GOVERNMENT
FINANCE DIVISION
51 North Carolina State Treasurer’s Annual Report • 2014-2015
S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 52
STATE & LOCAL GOVERNMENT FINANCE DIVISION
2012-13 2013-14 2014-15
Maintained the AAA Bond Rating Yes Yes Yes
Number of Local Government Units Contacted
Regarding their Fiscal Health or Compliance with
General Statutes
348 333 528
Total Debt Issued by Local Governments $3.8 Billion $1.9 Billion $4.2 Billion
Debt Issued for Special State and Local Authorities
and Agencies $2.3 Billion $1.2 Billion $2.2 Billion
Total State Debt Issued $1.6 Billion $0.5 Billion $0.8 Billion
S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
The State and Local Government Finance Division handles the sale and delivery of all State and local debt and
monitors the repayment of State and local government debt. Staff counsel assists local governments in determining
the feasibility of projects, the size of the financing, and the most expedient form of financing. Additionally, this
Division monitors and analyzes the fiscal and accounting practices of all local governments.
The Division comprises the Debt Management section, which issues and monitors all State and local debt, and the Fiscal
Management section, which monitors fiscal and accounting standards for local governments. The Division also provides
the State Treasurer, the Local Government Commission, the North Carolina Capital Facilities Finance Agency, and the North
Carolina Infrastructure Finance Corporation with staff assistance in fulfilling their respective statutory functions.
North Carolina State Treasurer’s Annual Report • 2014-2015 | 53
2014-15 FISCAL YEAR SUMMARY OF DEBT ISSUED
Total State $ 0.8 Billion
Total Local Governments $ 4.2 Billion
TOTAL $ 5 Billion
HISTORY
In 1931 the North Carolina General Assembly established
the Local Government Commission (LGC), staffed by this
Division, to help address the problems in local government
finance caused by the Depression. In 1933, 62 North
Carolina counties, 152 cities and towns, and some 200
special districts were in default on the principal or the
interest or both of outstanding obligations. The debt of its
local governments in general finds a significantly better
reception on the national bond markets than the national
average. Many attribute this favored credit status, in part, to
the work of the LGC. This Commission is unique nationally
and is often referred to as a model for local government
financial oversight.
THE LOCAL GOVERNMENT COMMISSION
The LGC, established by G.S. 159-3, provides assistance
to local governments and public authorities in North
Carolina. It is staffed by the Department of State Treasurer
and approves the issuance of debt for all units of local
government and assists these units with fiscal management.
The Commission is composed of nine members: the State
Treasurer, the Secretary of State, the State Auditor, the
Secretary of Revenue, and five others by appointment (three
by the Governor, one by the General Assembly upon the
recommendation of the President Pro Tempore, and one
by the General Assembly upon the recommendation of the
Speaker of the House of Representatives). The State Treasurer
serves as Chair and selects the Secretary of the Commission,
who heads the administrative staff serving the Commission.
The General Statutes require the Commission to meet at least
quarterly. As a matter of practice, the Commission meets on
the even months, and the Commission’s executive committee
meets in the odd months.
THE NORTH CAROLINA CAPITAL FACILITIES
FINANCE AGENCY
Private colleges, universities, nonprofit and for-profit
corporations providing certain services may receive
financing assistance through bonds issued by the North
Carolina Capital Facilities Finance Agency (Agency),
established by the General Assembly in 1986. The Agency
Board of Directors is composed of seven members: the
State Treasurer, the State Auditor, and five others by
appointment (three by the Governor, one by the President
Pro Tempore of the Senate and one by the Speaker of the
House of Representatives). The administrative staff for the
Agency is provided by the Department of State Treasurer.
The Agency meets monthly.
The staff presents the project and its recommendations
to the Agency board and subsequently to the LGC for
approval. Since its creation, the Agency has provided over
$7.1 billion in tax-exempt capital financing. At June 30, 2015,
there were $2.93 billion in outstanding obligations. Each
issue is payable solely from revenues derived from each
entity financed, is separately secured, and is separate and
independent from all other series of bonds as to source of
payment and security. During the fiscal year ended June
30, 2015, the Agency issued $1.11 billion in bonds for 12
institutions. The Agency’s annual report is available from the
Department of the State Treasurer.
S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 54
DEBT MANAGEMENT
The Division issues and monitors all State debt, including
debt secured by a pledge of the taxing power of the State
and debt for which repayment is subject to appropriation.
With the assistance of other State agencies, the Division
determines the cash needs, plans for the repayment of
debt (maturity schedules) and schedules the sale at the
most appropriate time. Finally, the Division handles the
actual sale and delivery of the debt, maintains the State
bond records and register of bonds, and monitors the debt
service payments. At June 30, 2015, the State had General
Obligation bonds outstanding of approximately $3.5 billion
and certificates of participation, limited obligation bonds
and lease-purchase bonds outstanding of approximately
$2.25 billion. (See Tables 7 and 8.)
The Division also is responsible for the authorization and
sale of revenue bonds for the North Carolina Medical Care
Commission, the Municipal Power Agencies, the North
Carolina Capital Facilities Finance Agency and the North
Carolina Housing Finance Agency.
The other primary function of the Division is the approval,
sale and delivery of all North Carolina local government
bonds and notes. This includes the sale of revenue bonds,
which are secured only by specific revenue pledged in
payment of the bonds. The Division staff counsels and assists
local governmental units in determining the necessity of a
project, the size of the issue, and the most expedient form
of financing. The staff strives to resolve all problems and
to determine that all statutory requirements are met before
applications are presented to the LGC for approval.
Debt records are maintained for all units on principal and
interest payments coming due in the current and future years.
All debt service payments are monitored through a system of
monthly reports. At June 30, 2015, authorized and unissued
general obligation bonds for local governments and
authorities amounted to $4.5 billion and general obligation
debt outstanding amounted to $9.5 billion. (See Table 7.)
Another responsibility of the Division’s staff is assisting
units that desire to enter into agreements to finance the
lease or installment purchase of capital assets. Before
approving such agreements, the LGC must find that the
proposed project is necessary and expedient, the proposed
undertaking cannot be economically financed by a bond
issue and that the contract will not require an excessive
increase in taxes. During the fiscal year ended June 30,
2015, the LGC approved contracts or other agreements
(including refundings) totaling $1.8 billion.
(See Tables 5 and 6.)
S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 55
1 The GARVEES are bonds issued for the State Department of Transportation for transportation construction and improvement costs. They are payable solely
from certain federal transportation revenues received on behalf of the State and do not create a liability or obligation of the State or any political subdivision.
The State issued new GARVEE bonds in fiscal year 2015.
2 These are ongoing programs involving more than a year in duration. The purpose of these projects is to allow interim funding of large ongoing programs until
a sufficient amount of bonds or favorable market conditions justify replacing the notes with permanent financing.
3 Bonds issued by these authorities are commonly referred to as Industrial Revenue Bonds and are used to attract and retain manufacturing industries to the State.
BOND ISSUANCES FOR 2014-15
FY No. 2014-2015 (Amount in Millions)
BONDS SOLD FOR THE STATE
G.O. Bonds (General Fund) 1 $ 231.4
North Carolina Turnpike Authority Revenue Bonds - -
Grant Anticipation Revenue Vehicle Bonds 1 1 264.9
Special Indebtedness 1 299.0
Total Issued 3 $ 795.3
BONDS AND NOTES SOLD FOR LOCAL GOVERNMENT UNITS
G.O. Bonds 45 $1,227.7
Revenue Bonds 46 1,012.2
Water and Sewer Revolving Loans 71 151.6
Water and Sewer Loans (Stimulus) 0 0.0
Special Obligation Bonds - Solid Waste 2 21.0
G.O. Notes2 31 105.5
Revenue Notes2 23 157.3
Total Issued 218 $ 2,675.3
Installment/Lease Contracts Sold for Local Units 143 $ 1.529.5
Total for Local Government 361 $ 4,204.8
REVENUE BONDS SOLD FOR
Medical Care Commission 20 919.6
Housing Finance Agency 0 0
Power Agencies 0 0
Industrial Facilities & Pollution Control Financing Authorities3 2 20.4
NC Department of Transportation (I-77) 1 100
Capital Facilities Finance Agency 12 1,110.0
Total Issued 35 $2,150.0
GRAND TOTAL ISSUED 399 $ 7,150.1
-- TABLE 3 --
S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 56
A comparison of bond issuances by the categories above
in fiscal year 2014-15 with issuances in the past two fiscal
years is shown below in Chart 8.
FISCAL MANAGEMENT
Another function of the Division involves monitoring
certain fiscal and accounting standards prescribed for
local governmental units by the Local Government Budget
and Fiscal Control Act. The Act requires each unit of local
government to have its accounts audited annually by a
Certified Public Accountant or by an accountant certified
by the Commission as qualified to audit local government
accounts. As a part of its role in assisting local units and
monitoring their fiscal programs, the Division provides
guidance in following generally accepted accounting
principles. Each local government is required to file a copy
of its annual audit report with the Division and submit all
audit invoices to the Division for approval.
The staff of the Fiscal Management Section annually reviews
the audited financial statements of approximately 1,299 local
governments and public authorities. The staff determines
that all reports are prepared in accordance with generally
accepted accounting principles and that applicable auditing
standards have been followed. The staff also reviews the
audit report to evaluate the financial condition of the unit, to
determine if the unit complied with the Local Government
Budget and Fiscal Control Act and other State laws, and to
determine if the unit has an adequate system of internal
controls in place. As a part of the audit review process, staff
reviewed approximately 583 single audits and approximately
269“Yellow Book” audits to ensure that audits performed
under Government Auditing Standards (the “Yellow Book”)
and the federal and State single audit acts meet all the
federal and State requirements.
When Division staff notes problems, local governments and
public authorities, as well as their independent auditors,
receive written communication expressing the staff’s
concerns, suggestions for improvements and an offer of
assistance. On behalf of the LGC, staff requests a response
detailing the unit’s plans to take corrective action. In fiscal
year 2014-15, staff sent approximately 528 audit letters
to units of local government. Letters typically discussed
such issues as over expenditures in the budget, fiscal
weaknesses in the water and sewer system, internal control
problems with the accounting system, credit cards or
deposits, late delivery of audits or problems with the unit’s
level of fund balance. In addition, letters were sent to small
units that routinely have internal control weaknesses related
to segregation of duties, which is a challenge for units
with limited finance staff. In providing assistance to local
governments, units are counseled in accounting systems
and internal controls, cash and investment management,
budget preparation, risk management, capital planning and
changes in laws and regulations. Educational programs
in the form of seminars and classes are also provided
in order to accomplish these tasks. Staff members make
presentations throughout the year at various workshops
sponsored by:
• North Carolina Association of School Business Officials
• North Carolina Government Finance Officers Association
• North Carolina Local Government Investment Association
• North Carolina League of Municipalities
• North Carolina State University MPA Program
• North Carolina Rural Water Association
• North Carolina Department of Justice
• UNC School of Government
• Eastern Carolina Council of Governments
• Lumber River Council of Governments
• Cherry, Bekaert, LLP
S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 57
-- TABLE 4 --
GENERAL OBLIGATION BONDS | LOCAL GOVERNMENT | REFERENDA & AUTHORIZATIONS
FISCAL YEAR JULY 1, 2014 - JUNE 30, 2015
Propositions Bonds
# Proposed # Approved % Approved $ Proposed $ Approved % Approved
COUNTIES
VOTED PROPOSITIONS
School 5 5 100.00% $465,500,000 $465,500,000 100.00%
Community College 4 4 100.00% $59,000,000 $59,000,000 100.00%
Parks & Recreation
Total 9 9 100.00% $524,500,000 $524,500,000 100.00%
NONVOTED PROPOSITIONS
Refunding 12 12 100.00% 352,840,000 352,840,000 100.00%
2/3rds 1 1 100.00% 13,550,000 13,550,000 100.00%
Total 13 13 100.00% $366,390,000 $366,390,000 100.00%
DISTRICTS
VOTED PROPOSITIONS
Water
Sewer
Total 0 0 0% $0 $0 100.00%
NONVOTED PROPOSITIONS
Refunding 2 2 100.00% 28,500,000 28,500,000 100.00%
Total 2 2 100.00% $28,500,000 $28,500,000 100.00%
MUNICIPALITIES
VOTED PROPOSITIONS
Public Safety 1 1 100.00% 31,000,000 31,000,000 100.00%
Water 1 1 100.00% 2,000,000 2,000,000 100.00%
Sewer 2 2 100.00% 2,446,000 2,446,000 100.00%
Greenway 1 1 100.00% 4,600,000 4,600,000 100.00%
Neighborhoods 1 1 100.00% 20,000,000 20,000,000 100.00%
Economic Development 2 2 100.00% 40,000,000 40,000,000 100.00%
Housing 2 2 100.00% 25,000,000 25,000,000 100.00%
Parks & Recreation 4 4 100.00% 137,825,000 137,825,000 100.00%
Streets & Sidewalks 7 7 100.00% 239,555,000 239,555,000 100.00%
Total 21 21 $502,426,000 $502,426,000 100.00%
NONVOTED PROPOSITIONS
Refunding 5 5 100.00% 182,460,000 182,460,000 100.00%
2/3rds 2 2 100.00% 6,755,000 6,755,000 100.00%
Total 7 7 100.00% $189,215,000 $189,215,000 100.00%
TOTAL VOTED 30 30 100.00% $1,026,926,000 $1,026,926,000 100.00%
TOTAL NONVOTED 22 22 100.00% $584,105,000 $584,105,000 100.00%
GRAND TOTALS 52 52 100.00% $1,611,031,000 $1,611,031,000 100.00%
S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 58
MUNICIPALITIES: Amount
UTILITIES
Sanitary Sewer $1,983,684
Electric 4,998,301
Gas -
Water 11,738,603
$18,720,588
PUBLIC BUILDINGS
Fire Station $907,500
Municipal Buildings 244,349,527
Town Hall 1,229,680
Stadium Complex 53,250,000
Airport 100,000
Community Center 2,170,816
Public Safety 2,235,297
$304,242,820
Land $4,421,574
Communications 1,623,623
Recreation 22,746,811
Streets & Sidewalks 21,959,161
Equipment 24,429,337
Refunding 363,198,823
Stormwater 575,000
Economic Development 1,000,000
Parking 3,000,000
Redevelopment 2,000,000
Interlocal 1,864,843
Vehicles 659,389
$447,478,561
SUBTOTAL $770,441,969
-- TABLE 5 --
INSTALLMENT PURCHASE AGREEMENTS APPROVED BY PURPOSE
FISCAL YEAR JULY 1, 2014 THROUGH JUNE 30, 2015
COUNTIES: Amount
SCHOOLS $156,468,490
PUBLIC BUILDINGS
Recreation Center $4,618,592
Auditorium 335,562
Courthouse/Law Enforcement/Jail 6,509,204
County Buildings 112,328,524
Medical Center 7,000,000
Library 892,518
$131,684,400
UTILITIES
Water 2,599,858
Sanitary Sewer 19,548,616
$22,148,474
Community College $8,738,449
Industrial Development 5,870,399
Refunding 632,225,000
Equipment 13,715,343
Interlocal 3,729,686
Vehicles 831,900
Land Acquisition 3,775,350
Solid Waste 3,275,878
Parking 8,398,447
$680,560,452
COMMUNITY COLLEGES
Guaranteed Energy Savings Contract 11,317,145
DISTRICTS/AUTHORITIES:
Airport $860,000
Refunding 5,580,000
$6,440,000
SUBTOTAL $1,008,618,961
GRAND TOTAL $1,779,060,930
S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 59
-- TABLE 6 --
INSTALLMENT AND LEASE AGREEMENTS APPROVED BY THE LOCAL GOVERNMENT COMMISSION
FISCAL YEARS ENDED JUNE 30, 2015, 2014 AND 2013 (IN MILLIONS)
FY 2014-15 FY 2013-14 FY 2012-13
NO. Amount NO. Amount NO. Amount
Counties 22 $350.0 17 $303.0 34 $360.0
Municipalities 67 407.2 49 301.7 59 819.8
Authorities/Districts 1 0.8 4 12.0 5 15.8
Community College/GESC 9 20.0 3 11.0 5 21.9
Subtotal 99 $778.0 73 $627.7 103 $1,217.5
Refunding 31 $1,001.0 17 $326.3 26 $632.0
GRAND TOTAL 130 $1,779.0 * 90 $954.0* 129 $1849.5*
*Total includes refundings.
-- TABLE 7 --
SUMMARY OF STATE AND LOCAL GOVERNMENT DEBT AND AUTHORIZATIONS
AT JUNE 30, 2015
General
Obligation
Debt
Special
Indebtedness/
Installment/
Lease
Purchase
Debt
Revenue
Bond/
Revolving &
State Bond
Loan/Special
Obligation
Bond Debt
Total
Industrial
Revenue
Bonds
Total
Indebtedness
General
Obligation
Bonds
Authorized
and
Unissued
Non-
General
Obligation
Debt
Authorized
and
Unissued
State of NC $3,469,220,000 $2,249,295,000 $- $5,718,515,000 $- $5,718,515,000 $- $-
GARVEE 1 - - 743,700,000 743,700,000 - 743,700,000 - -
NC Turnpike - - 1,019,588,109 1,019,588,109 - 1,019,588,109 - -
State
Authorities
& Institutions
- - 19,863,883,035 19,863,883,035 - 19,863,883,035 - -
Totals $3,469,220,000 $2,249,295,000 $21,627,171,144 $27,345,686,144 $- $27,345,686,144 $- $-
Counties $6,800,724,880 $4,917,624,019 $829,604,563 $12,547,953,462 $- $12,547,953,462 $2,142,275,000 $-
Municipalities 2,338,240,815 3,216,075,344 5,505,847,660 11,060,163,819 - 11,060,163,819 1,250,635,100 -
Districts 335,000,204 17,008,188 1,281,111,972 1,633,120,364 - 1,633,120,364 - 117,737,000
Authorities - 17,456,639 2,106,435,575 2,123,892,214 1,376,317,199 3,500,209,413 - -
Total $9,473,965,899 $8,168,164,190 $9,722,999,770 $27,365,129,859 $1,376,317,199 $28,741,447,058 $3,392,910,100 $117,737,000
GRAND
TOTAL $12,943,185,899 $10,417,459,190 $31,350,170,914 $54,710,816,003 $1,376,317,199 $56,087,133,202 $3,392,910,100 $117,737,000
Note: Outstanding indebtedness above does not include the bonded indebtedness for which funds have been escrowed from advance
refunding proceeds or other sources to cover the debt.
	
1 Grant Anticipation Revenue Vehicle Bonds.
		S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 60
-- TABLE 8 --
Source: Chief fiscal officer of each authority or institution.
*unaudited.
REVENUE BONDS AND OTHER INDEBTEDNESS OF STATE
AUTHORITIES AND INSTITUTIONS AT JUNE 30, 2015
Appalachian State University $ 253,583,115
East Carolina University 194,746,184
Elizabeth City State University 33,708,404
Fayetteville State University 66,992,256
North Carolina A & T State University 32,743,786
North Carolina Central University 85,350,909
North Carolina School of the Arts 8,069,618
North Carolina State University at Raleigh 560,071,262
University of North Carolina at Asheville 47,174,784
University of North Carolina at Chapel Hill 1,366,974,111
University of North Carolina at Charlotte 539,067,729
University of North Carolina at Greensboro 317,403,429
University of North Carolina at Pembroke 50,054,661
University of North Carolina at Wilmington 219,924,703
Western Carolina University 110,171,662
Winston-Salem State University 91,566,775
North Carolina Capital Facilities Finance Agency 2,926,761,298
North Carolina Eastern Municipal Power Agency 1,721,650,000
North Carolina Housing Finance Agency 732,119,000
North Carolina Medical Care Commission 7,216,065,663
North Carolina Municipal Power Agency No. 1 1,196,735,000
North Carolina State Education Assistance Authority 1,903,835,392
North Carolina State Ports Authority 89,113,294
North Carolina Department of Transportation (I-77) 100,000,000
TOTAL $ 19,863,883,035
The following chart outlines the revenue bonds and other indebtedness of State authorities and institutions at June 30, 2015.
The State is not responsible for debt service on any of the revenue bonds and other indebtedness represented in this chart.
S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 61
PURPOSES FOR WHICH LOCAL GOVERNMENTS SOLD BONDS & NOTES
FISCAL YEAR 2015
School Utilities Refunding Other NO. Total Amount
G.O. BONDS
Counties $561,940,000 $- $259,982,000 $110,050,000 21 $931,972,000
Municipalities - 14,547,000 143,977,000 100,980,000 18 259,504,000
Districts and Authorities - 11,760,000 24,435,000 - 6 36,195,000
Total G.O. Bonds $561,940,000 $26,307,000 $428,394,000 $211,030,000 45 $1,227,671,000
REVENUE BONDS
Counties - $18,515,000 $77,153,000 $5,000,000 6 $100,668,000
Municipalities - 207,419,412 479,836,000 8,550,000 27 695,805,412
Districts and Authorities - 39,542,136 176,140,000 - 13 215,682,136
Total Revenue Bonds - $265,476,548 $733,129,000 $13,550,000 46 $1,012,155,548
SPECIAL OBLIGATION BONDS
Solid Waste - $16,815,000 - $4,200,000 2 $21,015,000
Total Special Obligation Bonds - $16,815,000 - $4,200,000 2 $21,015,000
WATER & SEWER REVOLVING LOANS
Counties - $40,505,210 - - 11 $40,505,210
Municipalities - 94,803,177 - - 49 94,803,177
Districts and Authorities - 16,338,151 - - 11 16,338,151
Total Water & Sewer Revolving Loans - $151,646,538 - - 71 $151,646,538
NOTES
G.O. Bond Anticipation Notes $10,252,962 $10,526,000 - $84,750,400 31 $105,529,362
Revenue Notes - 113,962,331 - 43,295,000 23 157,257,331
Total $10,252,962 $124,488,331 - $128,045,400 54 $262,786,693
TOTAL BONDS & NOTES $572,192,962 $584,733,417 $1,161,523,000 $356,825,400 218 $2,675,274,779
-- TABLE 9 --
S TAT E & LOCAL GOVERNMENT F I N A N C E D I V I S I O N
North Carolina State Treasurer’s Annual Report • 2014-2015 | 62
DEBT MANAGEMENT ACTIVITIES - STATE & LOCAL (IN MILLIONS)
FY 2014-15 FY 2013-14 FY 2012-13
NO. Amount NO. Amount NO. Amount
BONDS SOLD FOR STATE
$306.7 1 $231.4 1 $306.7 4 $1,321.0
- - - - - - -
199.6 1 299.0 1 199.6 1 250.0
- 1 264.9 - - - -
- - - - - - -
506.3 3 795.3 2 506.3 5 1,571.0
BONDS AND NOTES SOLD FOR LOCAL GOVERNMENT UNITS
	
	
G.O. Bonds 45 1,227.7 53 689.9 84 1,285.0
Revenue Bonds 46 1,012.2 27 201.4 37 648.5
Special Obligation Bonds - Solid Waste 2 21.0 - - 2 4.6
G.O. Notes 31 105.5 20 51.6 40 242.7
Revenue Notes 23 157.3 10 59.8 14 66.6
Subtotal Bonds & Notes Issued 147 2,523.7 110 1,002.7 177 2,247.4
Installment/Lease Contracts Sold for Local Units 143 1,529.5 134 886.1 173 1,546.4
Water & Sewer Revolving Loans * 71 151.6 40 60.0 24 103.4
Water & Sewer Revolving Loans (Stimulus) * - - - - 33 49.2
Total for Local Government Units 361 $4,204.8 284 $1,948.8 407 $3,946.4
REVENUE BONDS SOLD FOR
Medical Care Commission 20 919.6 16 762.9 13 1,154.0
Housing Finance Agency - - 1 54.3 3 157.0
Power Agencies - - 1 175.0 3 605.0
Industrial Facilities and Pollution Control
Financing Authorities 2 20.4 3 12.6 4 71.6
NC Department of Transportation (I-77) 1 100.0 - - - -
Capital Facilities Finance Agency 12 1,110.0 11 150.1 13 263.8
Total Issued 35 2,150.0 32 1,154.9 36 $2,251.4
GRAND TOTAL ISSUED 399 $7,150.1 318 $3,610.0 448 7,768.8
-- TABLE 10 --
* Represents amounts of Water and Sewer Revolving Loans issued / closed during the fiscal year.
STATE HEALTH PLAN DIVISION
63 North Carolina State Treasurer’s Annual Report • 2014-2015
The State Health Plan for Teachers and State
Employees (Plan) provides health care coverage to
approximately 685,000 teachers and school person-nel,
state employees, retirees, current and former lawmak-ers,
state university and community college personnel, and
their dependents. The mission of the State Health Plan is
to improve the health and health care of North Carolina
teachers, state employees, retirees, and their dependents, in
a financially sustainable manner, thereby serving as a model
to the people of North Carolina for improving their health
and well-being.
The Plan’s vision is to be a leader in North Carolina by
providing access to cost-effective, quality health care and
wellness programs for our membership. In fulfilling its
mission and vision, the Plan seeks to follow these values:
focusing on our members; collaborating with our vendor
partners and other stakeholders on behalf of our members;
acting in a transparent and open manner with the highest
degree of integrity; and striving for the best quality of care
and service for our members.
The Plan is dedicated to providing members with an
excellent customer experience and convenient access to
health and wellness programs, and to providing public
leadership on health policy. The Plan is self-insured and
exempt from the Employee Retirement Income Security Act
(ERISA) as a government-sponsored plan.
The Plan’s strategic priorities are to (1) improve members’
health, (2) enhance members’ experience and (3) ensure a
financially stable State Health Plan.
GOVERNANCE
The Treasurer, Executive Administrator and Board of
Trustees are designated as fiduciaries for the Plan, with
ultimate decision-making entrusted to the Treasurer. The
Plan is governed by a 10-member Board of Trustees with
fiduciary responsibility. The Board of Trustees is tasked with
making decisions regarding the State Health Plan, such as
approving large contracts, designing Plan benefit programs,
and setting premium rates, copays and deductibles. The
General Assembly determines member eligibility rules and
provides state funding for the Plan.
The Board of Trustees is composed of: an employee of a State
department, agency or institution; a teacher employed by a
North Carolina public school system; a retired employee of a
State department, agency or institution; and a retired teacher
from a North Carolina public school system. The board is
also to be made up of experts with relevant skills such as
health economics, health benefits and administration, and
health law. The State Treasurer is an ex officio member of the
Board and serves as its Chair, but only votes in the event
of a tie. The Director of State Budget serves as an ex officio
nonvoting member. Two members are appointed by the
Governor. Two members are appointed by the State Treasurer.
Two members are appointed by the General Assembly
upon the recommendation of the Speaker of the House of
Representatives. Two members are appointed by the General
Assembly upon the recommendation of the President Pro
Tempore of the Senate.
MEMBERSHIP STATISTICS
The State Health Plan provides health care coverage
to approximately 685,000 teachers, state employees,
retirees, current and former lawmakers, state university
and community college personne